The Missing Sector

For more than two hundred years, mainstream thinking has regarded the market as the primary source of material “progress.” And indeed, to a large extent that’s been true. But yesterday is not forever. Today the market is approaching a point of diminishing returns – systemic diminishing returns. It is yielding less well-being per unit of output by practically any measure, and more problems instead: obesity instead of good health, congestion instead of mobility , time deficits instead of leisure, depression and stress instead of a sense of well-being, social fracture rather than cohesion, environmental degradation rather than improvement.

In place of wealth, the economic machinery increasingly turns out what John Ruskin, the 19th Century essayist on art and economics, called “illth,” which is accumulation that fosters ill results rather than towards weal, or well-being.This is not just a matter of distribution, which is the traditional concern of the Left. Inequitable distribution is a major problem, to be sure, and becoming more so. But to redistribute illth is not necessarily to do anyone a great favor.


Looking Backward: Economics and the Cult of Yesterday

One reason that the nation has not made more progress toward an economic “recovery” is that the people in charge really don’t know what one would look like. The top economists in Washington don’t appear to have asked the obvious question, “Recovery of what—and for what?” Instead they have followed the old drill, tried to rekindle the old flame, and remained wedded to the old guideposts that leave them looking at yesterday and trying to see tomorrow.

Just recently, the president of France realized the stupidity. He has decided that his nation’s measures of economic health need to change to account for today’s challenges instead of yesterday’s. As Washington gears up to spend billions in more “stimulus,” it would help to ask exactly what it is trying to stimulate—and most importantly, exactly what would constitute success.


Why Economists Are So Often Wrong

What is called “economics” is really psychology on steroids. It starts with a model of human nature and extrapolates an entire scenario for how the world works from that. The model is homo economicus,the myopic protoganist of the economics texts. This hypothetical person has no social affinities, no lapses of judgment or hang-ups, no capacity even for thinking about anyone besides him or herself. He goes through life with an unfailing and relentless calculus of personal loss and gain.

As I explained in the first part of this essay, The Tragedy of Economics this portrayal of our basic nature did not arise from actual inquiry. Homo economicus was from the beginning a polemical construct, devised to serve political ends. At first this was to help undermine the secular authority of the Roman Church, and then the divine right of kings. More recently it has served to justify a fundamentalism of what is called “the market.” Along the way, it has provided economists with the semblance of a predictable atom of economic activity. This has enabled them to declaim under the banner of “science,” and has given them a hook on which to hang their arcane math.


The Tragedy of Economics: Market Theory Vs. Human Nature

When Jimmy Wales, a refugee from options trading, set out to create an encyclopedia online, he thought first of the Britanica model, except with volunteers. He assigned articles to professional experts, and established panels for peer reviews. Then he started to write one himself – on options trading – and realized it was a drag.

It was like “handing in an essay at grad school,” he said later. So Wales shifted gears. He kept the volunteer model; but made it an open and social experience rather than a hierarchical one. Anyone could write an entry, on anything. The peer reviewers would be the readers themselves, who could correct factual errors and omissions, and challenge biases.


The Cosmic Cop-Out of “the Market” (with a Nod to Henry George)

Stephen Schwarzman is the chief executive of the Blackstone Group, which is one of those Wall Street operations that is described as a “private equity firm.”  He was on the cover ofFortune magazine in February, which means he’s a pretty big cheese right now.  He’s definitely big in my corner of the world.   Blackstone recently bought up 14% of the office space in Marin County, California, through a leveraged buy-out of the owner.  Leverage is debt.  Leveraged buy-outs involve tons of it.

To get out from under this load, Blackstone is going to have to sell off quickly – ie “flip” — the office buildings here.  That means more debt, more taxes – and most likely, higher rents.  Blackstone will have built nothing and improved nothing.  It simply will have taken existing assets and used debt to conjure money out of them.  But don’t blame the Big Cheese for the higher rents in prospect,  “Rents are only what the market will bear,” a local real estate man said.  That’s what they always say, when something bad happens at least.  “We didn’t do it. The market did.”


The Irrationality of “Economics”

Garrison Keillor says that if you go fishing with a member of the church in Lake Wobegon, you had better take two of them.  Take one out in your boat and he’ll drink all your beer.  Take two, and neither of them will drink any.

Sometimes we make better decisions together than apart. The presence of others can remind us that our own needs and opinions aren’t the only ones.  It also can evoke our better natures, or at least restrain our worse ones; the compulsive eater eats alone. This is the wisdom of the New England town meeting.  That salutary social effect can diminish as the scale increases, but it still can operate in a useful way. We support bottle bills even though, left to our own devices, we might be tempted to toss our own bottles into the trash.  Or maybe it’s because we would be so tempted.


Gifts2: Economist Calls Christmas a “Deadweight Loss”

Did you know that Christmas in the U.S. is wasteful?  Not in the way that is numbingly obvious to most of us, but in a narrower and more technical way that suits the strange form of human mentation called “economics.”  According to media reports, an economist by the name of Joel Waldfogel at the University of Pennsylvania has been asking college students to put monetary values on the gifts they receive from others.  Generally these values are less than what the givers actually paid.

The result is what the professor terms, with what one hopes is witting self-parody, the “deadweight loss of Christmas.”   He puts this loss at between ten and eighteen percent of Christmas spending, which means that billions of dollars a year go down the drain as he conceives it. That doesn’t mean energy and raw materials, trash and the rest. It means the difference between the dollar value that recipients put on gifts and the amount the givers paid for them.


Milton Friedman: Romantic

We tend to romanticize the opposite of what we don’t like, and in political economy the tendency reaches full flower.  To those who hate “the market,” the government is a knight in shining armor. To those who hate the government, “the market” can do no wrong.

Milton Friedman, the economist who passed on this week, was in the latter camp. The market to him was not just the combined actions of a bunch of people with all their silliness and hang-ups. It was a thing, the holiest of holies, the hand of God on this earth.  Friedman came of age in the shadow of the young Soviet Union and its appeal for Depression-era intellectuals. Like many of his generation he got stuck in that drama, and never grew past it.


Lawrence Summers: It’s the Economics, Stupid

Lawrence Summers, the Harvard president, has resigned, and the story quickly has become how the political correctness crowd hounded the poor man out. It was the “most radical, hard-left elements within Harvard’s diverse constituencies,” said Alan Dershowitz, the Harvard law prof, in today’s Boston Globe. Dershowitz called Summers’ critics “arrogant”, a subject Mr. Dershowitz definitely knows something about, as does Mr. Summers.

There is no question that Summers stepped into Harvard’s p.c. muck.  To that extent I almost feel for him, considering how he went out of his way to do so.  But Summers has a p.c. problem of his own, or more precisely an e.c. problem – economic correctness. Summers is an economist, which means he thinks he knows how the world works. Like many in his field, he has not a small view of himself and of the belief system he professes. This was part of his undoing.