The End is at Hand

the end is at hand

… but you still might want to check out the bus schedule for your ride home.

I’ve been studying jobs and the new economy for nearly three years, and blogging about them for two. For reasons I’ll talk about later, I’ll be drawing this blog series to a close at the end of September. In the meantime, I thought this might be a good time to invite you to check out my other blog — here’s a link to its About page.

I say that because I just started a new “consciousness and the self” series there, and today I’m drafting an installment that borrows from an earlier post here, on the topic of “finding your true calling” in your vocation.

The other blog has a different focus than this one, but there’s some overlap in content, and I write it in the same style, with a commitment to research and letting the pros offer their opinions. If you like that approach, you might like what you find over there.

That’s all. Just wanted to give you a heads up. See you on Thursday with the next installment of “homo economicus.”

Homo Economicus [3]: Capitalism For Capitalists

homo economicus

Homo Economicus is alive and well where capitalism and capitalists are prospering  most:  in the USA. We know that because U.S. GDP is going up, and has been since the 2007-2008 financial crash, That’s the perspective of this Bloomberg piece:  Capitalism Is Working in the U.S.: From Warren Buffett to Jeff Bezos, today’s American capitalists are proving Adam Smith’s claim that free markets produce investment and growth (Nov., 2018)

“So where is capitalism succeeding in a world roiled by kleptocrats, simmering trade wars, and the xenophobia that inspired Brexit? That would be the U.S.

“American free enterprise is achieving the greatest growth in the developed world, posting annual gross domestic product gains since 2009. Within just eight years of the global financial crisis, the U.S. was the only non-emerging-market economy with record GDP. The nation’s growth has exceeded the Group of Eight leading industrial countries’ average every year since 2012, a trend that economists surveyed by Bloomberg forecast to continue through 2020.”

Bloomberg is bullish on American capitalism, but the Nobel prizewinning economist who created the concept of GDP had his reservations about its proper use:

“GDP’s inventor Simon Kuznets was adamant that his measure had nothing to do with wellbeing. But too often we confuse the two… If something has to be sacrificed to get GDP growth moving, whether it be clean air, public services, or equality of opportunity, then so be it.”

“GDP is how we rank countries and judge their performance. It is the denominator of choice. It determines how much a country can borrow and at what rate. But GDP is well past its sell-by date, as people are starting to realise. However brilliant the concept, a measure that was invented in the manufacturing age as a means of fighting the Depression is becoming less and less capable of imparting sensible signals about complex modern economies.

5 Ways GDP Gets It Totally Wrong As A Measure Of Our Success, World Economic Forum (Jan. 17, 2018)

The ideological clash between the two articles cited above couldn’t be more striking.

The Bloomberg’s article extols capitalism as a “moral force” to match the American Revolution:

“The founder of modern capitalism, Adam Smith, published The Wealth of Nations in 1776, the same year 13 colonies declared their independence from Great Britain. It remains the most referenced guide to prosperity because of its moral force: Smith said the freest markets are led by an invisible hand benefiting everyone, not just the individuals and companies motivated by their own profit.”

The article then lauds the big capitalist growth winners — Jeff Bezos, Elon Musk, Warren Buffet, Facebook, Amazon, Paypal, Apple, etc. — singling out Musk for special praise, saying “[Adam] Smith would relish the example of Musk,” who “might be the archetype of Smith’s capitalist,” despite his having to “give up his position as Tesla chairman and pay a $20 million fine to settle fraud charges.”

Finally, after a few paragraphs acknowledging there’s still work to be done, the article soars to a grand finale that quotes Abe Lincoln on upward mobility:

“Quoting Lincoln in her summer 2010 Marquette Law Review essay, Heather Cox Richardson wrote: “A healthy American society worked so that ‘[t]he prudent, penniless beginner in the world, labors for wages awhile, saves a surplus with which to buy tools or land, for himself; then labors on his own account another while, and at length hires another new beginner to help him.’ This was the idea behind free labor, ‘the just and generous, and prosperous system, which opens the way for all—gives hope to all, and energy, and progress, and improvement of condition to all.’ ”

By contrast, the World Economic Forum article is having none of Bloomberg’s enthusiasm:

“GDP is a gross number. It is the sum total of everything we produce over a given period. It includes cars built, Beethoven symphonies played and broadband connections made. But it also counts plastic waste bobbing in the ocean, burglar alarms and petrol consumed while stuck in traffic.

“Kuznets was uneasy about a measure that treated all production equally. He wanted to subtract, rather than add, things he considered detrimental to human wellbeing, such as arms, financial speculation and advertising. You may disagree with his priorities. The point is that GDP makes no distinction. From the perspective of global GDP, Kim Jong-un’s nuclear warheads do just as well as hospital beds or apple pie.

“Pointing out the defects of GDP and even tentatively suggesting alternatives is no longer controversial. Former French President Nicolas Sarkozy commissioned a panel led by Joseph Stiglitz, a Nobel economist, to examine the issue. It was creating a dangerous ‘gulf of incomprehension,’ Sarkozy said, between experts sure of their knowledge and citizens ‘whose experience of life is completely out of sync with the story told by the data.’”

The two articles are talking past each other, which allows both to be correct:  (a) capitalism is in fact good for capitalists, and (b) obsessing over GDP ignores general societal wellbeing. Squeezed between the two is the philanthrocapitalist vision of better world. We looked at that previously; we’ll look again next time.

Homo Economicus [2]

homo economicus

Despite its detractors, the concept of homo economicus is a mainstay of economic theory and policy-making because it has become a cultural myth, and cultural myths hold tight even if they perpetuate societal ill health. That’s is the perspective offered by London economist and Guardian columnist Peter Fleming in his book The Death of Homo Economicus: Work, Debt and the Myth of Endless Accumulation (2017). This is from the book blurb:

“In today’s workplaces we work harder and longer, labouring under the illusion that this will bring us more wealth. As this myth becomes increasingly preposterous, it’s time to understand why we believe in it, and where it came from.

“The Death of Homo Economicus explores the origin of this oppressive myth, in order to destroy it. The story begins with the creation of a fake persona labelled the ‘dollar-hunting man’, invented by economists Adam Smith and Friedrich Hayek. Today, this persona, driven by competition and ego, is used by politicians and managers to draw a veil over the terrible reality of work under capitalism.

“Creeping into all aspects of life, the desire to constantly compete and accumulate must be resisted if we are to create a better way of life for all.”

In this short book promo video, Prof. Fleming challenges the notion that humans are “a money-chasing animal” and that society as a whole prospers when dominated by “self-interested individualism.”  “The [homo economicus] ideal never really gained traction from the beginning.” he says, “because we don’t act as individual self-seeking beings, we live in a society and we live in communities.”

Author and entrepreneur Jeremy Lent agrees:

“Capitalism is based on the premise that the most desirable state of affairs is economic growth, which can be attained most effectively through free markets in which assets are privately owned. Based on this credo, the primary responsibility of government is to provide the infrastructure necessary for the free market to conduct its business with minimal constraints.

“Some important assumptions about human nature underlie these beliefs. Individuals are understood to be motivated primarily by financial self-interest. They are assumed to be rational in pursuit of this goal, and their “rationality” is believed to lead them to act competitively rather than cooperatively in the marketplace.

“Another crucial assumption holds that the aggregation of all these individuals competitively their own financial gain leads to the most beneficial outcome for society.

“These assumptions about human nature are not self-evident truths; however, the money-based system constructed by capitalism encourages and rewards these traits over other traditional, community-oriented values, creating a self-fulfilling prophecy about the nature of human behavior.”

The Patterning Instinct:  A Cultural History of Humanity’s Search for Meaning, Jeremy Lent (2017)

As The Guardian said in its review of The Death of Homo Economicus:

“‘Homo economicus’ is the totally made-up creature who is the proletarian hero of mid-20th-century economics: going about his daily life with unimpeachable rationality, efficiently calculating ways to maximise his self-interest.

“But people don’t actually live like that, as the behavioural economists Amos Tversky and Daniel Kahneman pointed out. It is a refuted model, yet its malign influence persists.”

“Malign” or not, competitive capitalism has become a cultural norm. Again from The Guardian’s book review:

“Our entire lives, [Fleming] argues, have been economified. The ruling narratives of work and commerce hypnotise us into thinking of our very selves as micro-businesses, so that it becomes ever harder to imagine life outside the paradigm of capital investment, productivity and profit.”

Free market champion Mises Institute agrees that economics would be better off if homo economicus went extinct.

“The problem … is that homo economicus is not actually necessary to understanding human behavior or how markets work. In fact, understanding of markets would be improved by not resorting to the homo economicus model at all… because it fails to provide a useful or accurate metric or model for human behavior.

“Thus, Ludwig von Mises noted that the homo economicus model described behavior for only one small type of human action, and failed to account for the behavior of consumers:

‘The much talked about homo economicus of the classical theory is the personification of the principles of the businessman. The businessman wants to conduct every business with the highest possible profit: he wants to buy as cheaply as possible and sell as dearly as possible. By means of diligence and attention to business he strives to eliminate all sources of error so that the results of his action are not prejudiced by ignorance, neglectfulness, mistakes, and the like…

‘The classical scheme is not at all applicable to consumption or the consumer. It could in no way comprehend the act of consumption or the consumer’s expenditure of money. The principle of buying on the cheapest market comes into question here only in so far as the choice is between several possibilities, otherwise equal, of purchasing goods; but it cannot be understood, from this point of view, why someone buys the better suit even though the cheaper one has the same “objective” usefulness, or why more is generally spent than is necessary for the minimum — taken in the strictest sense of the term — necessary for bare physical subsistence.’

“If an economics model tells us very little about consumer behavior, then its value is limited, to say the least.”

The Homo Economicus Straw Man, Mises Institute (Oct. 26, 2016).[i]

Curiously, von Mises’ argument suggests why homo economicus persists in capitalism theory:  it may not describe consumer behavior but it does describe his prototypical “businessman,” who is also his prototypical capitalist.

Continued next time.

[i]  The image above is from this article.

Homo Economicus

homo economicus

John Stuart Mill coined the term homo economicus to explain economic behavior. This is from . Investopedia:

Homo economicus, or ‘economic man,’ is the characterization of man in some economic theories as a rational person who pursues wealth for his own self-interest. The economic man is described as one who avoids unnecessary work by using rational judgment. The assumption that all humans behave in this manner has been a fundamental premise for many economic theories.

“The history of the term dates back to the 19th century when John Stuart Mill first proposed the definition of homo economicus. He defined the economic actor as one “who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labor and physical self-denial with which they can be obtained.”

“The idea that man acts in his own self-interest often is attributed to other economists and philosophers, like economists Adam Smith and David Ricardo, who considered man to be a rational, self-interested economic agent, and Aristotle, who discussed man’s self-interested tendencies in his work Politics. But Mill is considered the first to have defined the economic man completely.”

Homo economicus says the rational approach to commerce is to seek the most for the least. The idea has its detractors:

“The theory of the economic man dominated classical economic thought for many years until the rise of formal criticism in the 20th century.

“One of the most notable criticisms can be attributed to famed economist John Maynard Keynes. He, along with several other economists, argued that humans do not behave like the economic man. Instead, Keynes asserted that humans behave irrationally. He and his fellows proposed that the economic man is not a realistic model of human behavior because economic actors do not always act in their own self-interest and are not always fully informed when making economic decisions.”[1]

Austrian economist Ludwig von Mises sided with Keynes:

“It was a fundamental mistake … to interpret economics as the characterization of the behavior of an ideal type, the homo economicus. According to this doctrine, traditional or orthodox economics does not deal with the behavior of man as he really is and acts, but with a fictitious or hypothetical image. It pictures a being driven exclusively by ‘economic’ motives, i.e., solely by the intention of making the greatest possible material or monetary profit. Such a being does not have and never did have a counterpart in reality; it is a phantom of a spurious armchair philosophy. No man is exclusively motivated by the desire to become as rich as possible; many are not at all influenced by this mean craving. It is vain to refer to such an illusory homunculus in dealing with life and history.”

The Homo Economicus Straw Man, Mises Institute (Oct. 26, 2016).[2]

More recent criticism questions the role of rationality in human behavior not only in economics but more generally:

“Humanity’s achievements and its self-perception are today at curious odds. We can put autonomous robots on Mars and genetically engineer malarial mosquitoes to be sterile, yet the news from popular psychology, neuroscience, economics and other fields is that we are not as rational as we like to assume. We are prey to a dismaying variety of hard-wired errors. We prefer winning to being right. At best, so the story goes, our faculty of reason is at constant war with an irrational darkness within. At worst, we should abandon the attempt to be rational altogether.

“The present climate of distrust in our reasoning capacity draws much of its impetus from the field of behavioural economics, and particularly from work by Daniel Kahneman and Amos Tversky in the 1980s, summarised in Kahneman’s bestselling Thinking, Fast and Slow (2011). There, Kahneman divides the mind into two allegorical systems, the intuitive ‘System 1’, which often gives wrong answers, and the reflective reasoning of ‘System 2’. ‘The attentive System 2 is who we think we are,’ he writes; but it is the intuitive, biased, ‘irrational’ System 1 that is in charge most of the time.

“Other versions of the message are expressed in more strongly negative terms. You Are Not So Smart (2011) is a bestselling book by David McRaney on cognitive bias. According to the study ‘Why Do Humans Reason?’ (2011) by the cognitive scientists Hugo Mercier and Dan Sperber, our supposedly rational faculties evolved not to find ‘truth’ but merely to win arguments. And in The Righteous Mind (2012), the psychologist Jonathan Haidt calls the idea that reason is ‘our most noble attribute’ a mere ‘delusion’. The worship of reason, he adds, ‘is an example of faith in something that does not exist’. Your brain, runs the now-prevailing wisdom, is mainly a tangled, damp and contingently cobbled-together knot of cognitive biases and fear.

Not so foolish:  We are told that we are an irrational tangle of biases, to be nudged any which way. Does this claim stand to reason? Aeon Magazine (Sept. 22, 2014)

Even so,

“Although there have been many critics of the theory of homo economicus, the idea that economic actors behave in their own self-interest remains a fundamental basis of economic thought.”[3]

If the shoe doesn’t fit, why do we keep wearing it? And to what end? More next time.

[1] Investopedia, op cit.

[2]  The image above is from this article.

[3] Investopedia, op cit.