Monday, January 16, 2012

We aren't subject to the economy, it is subject to us

I wrote this piece recently for a radio program on the public radio station in Kansas City. My main point is that the economy is something we can make into what we want it to be, but that requires us to think about what we want our economy to look like and then to do something about it. For example, if you want a more just income distribution, then what exactly do you think our income distribution should look like? who should redistribute it? and how should they do it? We aren't stuck with what we got; we don't have to live with falling wages, increasing income inequality, or 9% unemployment; we can do something about it.

Here's what I wrote:
Nearly all of the economists you see on TV and who hold all the advisory positions in government come from the Neoclassical tradition, a tradition that thinks economics is a science like physics or chemistry. These economists construct models and test them using data to determine ahistorical laws or tendencies in the economy. They often test numerous models going through each one of them until they finally find one that best fits the data and will make as many assumptions as needed for their mathematical models to work nicely even if that model doesn’t make any sense.

Many of you have probably heard of the law of supply and the law of demand which supposedly work together to set an equilibrium price at which point the market is efficient (the point at which there is no surplus or shortage). These laws of supply and demand are regarded much the same as the law of gravity, something that is always working, has more or less always existed, and that we cannot do anything about.

Because these economists treat economics like physics, they believe that the laws of supply and demand acting in this way will bring about the socially optimal outcome. Workers will be paid according to how hard they work or how much value they create, there won’t be any unemployment unless it is because those workers simply won’t work for a lower wage, and consumers and businesses will bring about the good for everyone with self-serving actions because the market coordinates economic activity in such a way to produce the best outcome. To make these bold statements, they require that markets are perfectly competitive and that human persons are perfectly rational, and by rational they mean self-serving maximizers of utility. They insist that this is free of values, that it is simply how persons behave and how the economy works and that if we tried to do anything about it, we would just make it worse.

Yet, these economists ignore or simply disregard the fact that economics is not a science like physics or chemistry, but is a social science concerned with what ought to be or with what is best for society. Economics is a social science studying the choices of persons and institutions regarding economic phenomena (such as the production, consumption, and distribution of goods and services). Because the subjects of the science of economics are human persons who are social and whose decisions are moral, the content of economics is inherently social and inherently moral. No explanation of economic phenomena can be totally free of value statements. For example, to say that the economy will work best if we just leave it alone is a moral statement often supporting those who have power in the market, like corporations and banks.

Furthermore, economics cannot be completely separated from other social sciences, such as psychology, sociology, politics, history, anthropology, and philosophy. Yet, economists from the neoclassical tradition largely ignore the findings from these sciences. For example, they largely disregard the findings in psychology and sociology about human behavior, particularly group behavior, and instead insist that we act rationally and selfishly so as to maximize utility. Greg Mankiw, a well-known professor of economics at Harvard and an economic advisor under the Bush administration, once said that it would be irrational for bank managers or owners not to commit fraud or loot their own banks to make more money. This sort of sociopathic person who acts in total disregard for others is taken as the model for how all people act and is often used as a justification for behavior that serves the pockets of the wealthy.

The point is that we are not subject to the so called laws of the economy nor are we stuck with the economic outcomes we are experiencing today. The economy is subject to us, we are not subject to it like we are subject to the law of gravity. We can manipulate it and change it to fit our desirable social outcomes. If we are unhappy with 9% unemployment, terrible and growing income inequality, a 15% poverty rate, corporations dominating government, and banks being bailed out while people lose their homes then we can and should do something to change that. That is what is so admirable about the Occupy movement. They have gathered for a cause recognizing that a good society is much better than this and are demanding change from our political leaders, and I urge you to do the same.

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