The New Yorker’s January 13th, 2020, issue features a full-page ad for Richard Robb’s new book, Willful. At the top of this ad we read in large, two-color print that “Willful is a breakthrough in economics,” and near the bottom is a blurb from Nobel-laureate economist James Heckman describing this book as “a provocative and beautifully crafted challenge to conventional economics.”
I haven’t yet read Willful, although judging from what I’ve read about it, I’m sure that I’ll find this book to be not only informative but also one with which I mostly – perhaps even overwhelmingly – agree. So I have no complaints about what I take to be the substance of Mr. Robb’s book.
I do, however, have complaints about a major presumption behind the marketing of this book. It’s a presumption worth complaining about because it’s found also in the actual substance of many books on economics – including ones by Nobel laureates – as well as in proposals to change fundamentally the way that students are introduced to economics.
The presumption about which I complain is this: economic analysis is grounded in assumptions so flawed – and performed by eggheads so out of touch with reality – that economic science has been either of very little use to humanity or even a curse. But (the presumption continues) don’t despair! The Brilliant Economist who now offers this pioneering new book, or who teaches that radically new-style course, has discovered the Philosopher’s Stone for transforming base and sterile economics into a sure source of brilliant insight and guidance of a sort that the world has until now been denied.
Finally, all will be well with the world’s economies!
New ’n’ Improved!
Whenever I encounter such claims about any of the many new’n’improved approaches to economics I experience the same sensation that washes over me whenever I encounter any of the many click-bait ads that promise that various illnesses, ailments, and inconveniences can be avoided with “this one weird trick.”
Sure, it’s possible that every human being for the past few hundred millennia has failed to stumble upon some sure-fire, inexpensive, and quick and easy solution for problems ranging from the likes of toenail fungus and fatty livers to unfaithful spouses and excessive indebtedness. But, really, how likely is such a possibility? Not very.
Yet in many people the urge to believe in miracle cures and magic bullets runs so strongly that peddlers of these fantasies never lack for eager customers.
And so it is with economics. People unfamiliar with economics are easy prey for those promising that this or that radical new’n’improved approach to economics will unlock the secret for finally making economies work for everyone, rather than for just the rich.
Don’t buy it. The operation of market-oriented economies is largely independent, for better or worse, of whatever tenets are fashionable among professional economists. Not only do we economists mostly stick to describing the economy rather than designing it, the policy advice that we do offer is more often than not rejected. And this advice is almost never heeded when following it might jeopardize politicians’ electoral prospects.
Also, for all of its flaws and despite the many encumbrances that governments impose on it, the American market economy – contrary to incessant insistence otherwise – does “work for all” and not only for “the rich.” Ordinary and even poor Americans today enjoy a standard of living that is remarkably high and still rising. This happy reality is the fruit of relatively free and competitive and innovative markets.
At Economics’s Core
Nevertheless, being reared largely in both the Austrian and Virginia School traditions of economics – which are outside of today’s economics mainstream – I’m among the last economists to insist that all is well with mainstream economics. All is not well. Mainstream economics is infected with numerous flaws, not least of which, ironically, is a penchant for falling mindlessly for scientistic fads.
But most of the breathless promises of ground-breaking innovations in economic analysis are not promises to correct any of mainstream economics’s genuine flaws. Instead, most such promises are based on a complete misunderstanding of mainstream economics.
At the heart of most modern economics, including mainstream economics, is a core way of thinking that traces back to Adam Smith. At once deceptively simple and fiendishly difficult, the economic way of thinking is the one necessary and sufficient ingredient for making an analysis of the economy worthy of being called “economics.” Any new approach to understanding the economy that does away with or dilutes the economic way of thinking is an approach that can lead only to misunderstanding.
Indeed, much of what currently ails modern mainstream economics is economists’ failure to stick as closely as they should to the economic way of thinking.
No summary of this way of thinking is perfect, and we economists have legitimate disagreements amongst ourselves over what particular points should and shouldn’t be included in any such summary. But there can be no dispute that the economic way of thinking begins with the recognition that scarcity is unavoidable. For Jones to get more of one good thing requires that someone – Jones himself, or if not Jones, then Williams or Lee – forego some amount of another good thing. Or in a word: TANSTAAFL – there ain’t no such thing as a free lunch.
Also at the foundation of the economic way of thinking is the understanding that each individual has more interest in his or her own welfare – and more information about how best to promote that welfare – than that individual has in the welfare of strangers. No one cares about me quite as intensely and as consistently as I care about me, and no one is in as good a position to know how best to promote my welfare as I am. Ditto for you. From this fact follows the conclusion that each person acts self-interestedly.
But in spite of uninformed claims to the contrary, to say that we each act self-interestedly does not mean that individuals are greedy, shallow, and myopic materialists. A person’s self-interest almost always includes that of his or her children; it typically also overlaps very much, if never entirely, with the interests of family, friends, neighbors, and co-workers. What informed economists mean when insisting that each person acts self-interestedly is that each person has specific goals that he or she pursues – goals chosen by that person. Further, because of the limits of human understanding and knowledge, these goals are confined to arenas of thought and action that that person’s senses and mind allow him or her to comprehend.
Indeed, one way to summarize what economists mean when we describe individuals as self-interested is that we insist on recognizing that no individual is godlike. Non-economists might dislike this reality about human self-interest, but it is hardly optional.
A third and no-less foundational tenet of the economic way of thinking is that nearly every human action results in consequences that not only are unintended by the actor, but that cannot possibly be foreseen in detail by anyone. Society’s complexity is unfathomable.
We economists then perform some of our most valuable service in explaining how the mostly unintended consequences of self-interested actions in this world of scarcity either do or don’t combine to form an economic order – or a market process – that allows each of us to consume far more than each of us could possibly produce. Armed with an understanding of the logic of such an economic order, good economists are thus charged with – some might say cursed with – the adult responsibility of dashing the hopes of those who fall for any of the plethora of schemes for enriching society by having the state override market processes.
This core task of economists is not new, but it remains as important as ever. Far from needing to be replaced or even revised, what is needed most is that this core task be embraced more firmly by economists and accorded more respect by non-economists.