12 – WITH A HUMAN FACE
The more I study economics the more I realize its dependence upon philosophy and religion. People’s world-view, their beliefs about human psychology and motivation are very important in economics. In classical econ-speak, man is presumed to be motivated by rational utility maximization; greed, in people-speak. This simple, one-dimensional, agent can be analyzed mathematically and is thus convenient. It’s a drastic simplification but it is widely believed in our time. It’s said that it’s human nature to want more. But real economic behavior is “reflexive,” to use George Soros’s term, meaning that people’s economic actions are based on their ideas about the purposes of others’ actions. That is, what I do depends on what I think you’re trying to do, and vice versa. Of course this makes everyday living very complicated. At the worst, it would mean a world of all-against-all.
Soros’ theory of reflexivity begins with the point that our understanding of the world is imperfect, and the fact that we are part of the world is a real obstacle to the understanding of human affairs. People can react in two ways: they can try to understand the world or they can seek to change it to their advantage. People’s intentions and expectations in social situations set up a two-way connection between their thinking and the situation in which they participate. This has an effect on both. It introduces an uncertainty into the course of events and prevents the participant’s views from qualifying as knowledge. Soros calls this two-way interference reflexivity. Reflexive situations are characterized by a lack of correspondence between the participant’s views and the actual situation.
Soros contends that social events have a different structure than natural phenomena where a causal chain links one set of facts directly with the next. With social phenomena, participants seek to understand the situation (which includes both facts and opinions) and they also seek to influence the situation (which again includes both facts and opinions). This interplay intrudes directly into the causal chain, so that it does not lead directly from one set of facts to the next but reflects and affects the participants’ views. An uncertainty is now present that is absent from natural phenomena.
People need beliefs, settled ideas, and stories about the way things are. Right or wrong, they permeate society from top to bottom. Shared beliefs about human nature and religion are at the foundation of any society. There are myths about raising children and bringing the rain; about who are neighbors and who are outsiders; whether the earth is round or flat, and what is and is not money. The point is that such questions are settled. They are about daily, practical, matters that are decided without argument. Others things may be questionable but are settled anyway. Perhaps we have such myths because of our imagination and self-reflection. We can perceive our own purposes and can guess those of others. We see that even the animals have purposes so we presume that the gods do too, and thus they intend what happens in the world. Leaping to a desired conclusion is so easy! It’s hard to say “I don’t know,” or to give the Scotch verdict – “not proven.”
Beneath the talk of supply and demand, rational actors and so forth, below the strata of macro- and micro-economics, lies a layer of hot lava where people live their lives. This is the domain of micro-micro economics where real things actually happen. Here are ebbs and flows, and sometimes eruptions. Human actions are what matter. Their tangled motivations produce the ‘aggregates’ that economists look at. Little wonder they don’t drill down below their simplified hypotheses. Hitting lava would be too hot to handle.
When the enlightenment and capitalism began to bring big changes to the world, each generation had to deal with the stresses of life in new ways. “Lessons my mother taught me” seemed foolish. “Kids these days don’t know anything.” More recently, depression babies morphed into the greatest generation, then the silent generation with its men in grey flannel suits, followed by the boomers. They were superseded by “if it feels good, do it,” then gen-Xers and the millennials. Those born in between, straddling these changes, were shocked and confused by it all.
Mary and I once visited the Minnesota History Center in St. Paul. While she researched family background I looked at the exhibit on “The Greatest Generation,” the one that lived through the Great Depression, World War II and the prosperity that followed. The presentation was well done; the way we were and how we had all worked together. It was a bit depressing. Everyone had been behind the single goal of winning the war, down to the smallest detail. Men and women enlisted in the armed forces, housewives got jobs building armored cars or making bullets, children collected scrap paper and old lead toothpaste tubes. Rationing of gasoline and food was accepted with good humor. What a contrast to today’s society! And, I had been there. I had lived through it as a child. I knew it was all true. We were proud of it too. Could we become unified around a common goal only if there was war or a threat of invasion? Unlike mass religious movements with heresies and persecutions of unbelievers, here there seemed to be no dissenters from this cause, none at all.
After the war there was a huge burst of economic activity, an unprecedented boom, which was definitely forced from below. It had many causes such as the pent-up demand created by millions of returning veterans starting new households, the destruction of manufacturing outside the U.S., and the G.I. Bill putting millions of veterans through college. But there must have been more than that. There were also new attitudes and expectations. The soldiers who had returned from previous wars made no such impact on society. How did this generation become so focused and so cooperative when necessary? It wasn’t just the attack on Pearl Harbor. The terrorist attacks on New York City and Washington DC in September, 2011, failed to provoke Americans into solidarity and resolve. Taxes were not raised and the President said to go shopping. That’s what satisfied today’s generation.
Then it dawned on me! The Greatest Generation grew up and was formed during the Great Depression. Most disasters will affect only a few, but the depression touched almost everyone. All of those people learned valuable lessons and learned them together, such as: 1) bad things can happen to good people, 2) life is not fair, 3) don’t complain, things could be worse, 4) show up, help out, and do your best. These were in-your-face object lessons during depression times. As it turned out, everyone was prepared for the war; both soldiers on the battle front and workers on the home front, as it was called.
In the great prosperity that followed corporations grew bigger. Some even got to be monstrous. General Motors, IBM and Sears became bureaucratic nationwide mega-corporations. Management arose as a profession in itself. Industrial efficiency was improved by scientific time and motion studies. Attitudes gradually shifted in society toward conformity. Growth became the keyword. Manufacturing’s mission gradually changed from making things to making money, resulting in struggles with the growing labor unions. Over time a new zeitgeist of quarterly returns vs. labor peace was formed; a new balance that held for quite a long time. By the 1970s corporations were becoming multi-national and more hard-nosed, and labor’s power was beginning to decline. Employees comfortable with the old order were stunned by the shift.
Here is a letter to Amy Dickinson’s advice column: [1]
“Dear Amy: How does one get over the loss of a job they’ve held for a long time? After working for a major health insurance company for 28 years, I was told my job was being eliminated and shown the door. This was almost two years ago and I am still looking for a job. . . . I feel as if I have a knife in my back. . . . It’s hard to understand how they can do this to a loyal employee who has worked for them for so many years. Shouldn’t loyalty go both ways? . . . Was this really dirty on their part, or am I being too sensitive? Is this the norm for big corporations? I also feel like some people are thinking ‘she must have done something wrong.’ My confidence and self-respect are pretty much gone.”
Amy’s advice was, in part:
“Two years of ruminating about your former employer is a very long time to devote to an employer who dismissed you. It’s as if you are still ‘clocking in.’ You worked at a job and were compensated for the work you did. Most companies see this as a fair exchange and neither reward nor offer much in the way of loyalty. . . .”
Good advice for the poor lady; brutal but true. Your employer is not your friend. In twenty eight years she’d not figured it out for herself so it came as an awful shock. The new metaphors were: restructure, get lean and mean, cut out the deadwood, bring in new blood. The resulting ‘human relations’ policies tried to avoid cutting off the dog’s tail an inch at a time but produced the maximum amount of shock and humiliation when people were laid off. Employees were called into the personnel office in the afternoon, given written notice of termination requiring a signature and a check for wages to date. A security guard accompanied them collect their personal possessions, then to the door.
Human relations people said that this was the worst part of their job. It was extremely painful for them. They attended training seminars to help them handle the stress of this task and learn how to do it right; how to handle people who cried, pounded the table, had murder in their eyes or who slunk out totally defeated and sat on the curb for hours in full view of everyone. It was hard even without such complications. The security guard was embarrassed. Other employees had to watch yet keep their distance. “There goes Millie. She’s going to have a tough time. If they do that to her they will do it to me too, so screw them.” Morale suffered but life went on.
You might think with such misery on all sides, more creative ways of handling the problem would be found. Indeed, such horrible treatment didn’t happen when mass layoffs occurred. Blue-collar and skilled-trade workers had no illusions about company loyalty. The layoff date and hour were known to everyone. Work was shut down under the eyes of extra hired guards. If the workers didn’t clock in on the final day they wouldn’t get paid for that day. They would be unhappy but they were all in the same boat and there’s solidarity in that. They could be rehired when conditions were better. Upper management never suffered such humiliating hassles. Golden parachutes, stock options or buyouts gave them termination insurance. They too had no loyalty illusions. White-collar middle management and staff had the problem. Amy Dickinson couldn’t explain this in a few column-inches.
The laid-off, the surplussed, the let-go workers in our affluent society ought to be treated in in a more humane way. Paid employment, in our time, is not really needed for the production of goods but for the maintenance of income. This may explain why both management and ordinary workers keep their noses to the grindstone even as society grows richer. There is a lot of discussion about stagnant wages, layoffs, women working to support the household, concessions on pay and benefits, offshoring of jobs, and the gross disparity of rewards to CEOs. Some corporations have tried less painful cost-managing policies such as job-sharing or reductions in wages and hours. These may work if they are understood and expected to be temporary. Hiring freezes, attrition and incentives for early retirement are easier on people. Unemployment insurance can help many people, but it doesn’t touch jobs lost to new technology. Retraining programs aren’t adequate because the total number of jobs, skilled and unskilled, has fallen. Karl Marx’s reserve army of the unemployed is real and among us.
Some say it will “work itself out.” There will be “winners and losers” during any adjustments. Displaced workers will find other jobs; the company that laid them off will be more competitive and the economy more efficient. Pundits who make such pronouncements have never been escorted out the door by a security guard. But when companies cut production during a recession the market is flooded with unemployed workers, and finding other jobs “soon” is next to impossible. Technological unemployment may hit only a few industries at a time so millions aren’t laid off at once. Retraining and re-education might help. Individuals let go because of age, too-high salary or promotion beyond their level of competence are in real trouble. In these situations, finding any comparable position “soon” is unlikely.
Standard economic theory applies only during periods of “equilibrium” or gradual expansion when things are moving along at a steady pace. Industry is healthy, profits are good, there is nearly full employment and everyone is satisfied. There is normal churning in the job market with some workers laid off, some leaving for better pay, all rehired quickly because their skills are needed. But when dislocations happen – recessions, too many workers or obsoleted skills – then real, ordinary people bear most of the burden. They are the “losers.” They may not be poor but they’re poorer than before, and poorer than their neighbors. Their debts may force them into relative poverty even if they can find a low-salaried or part-time job. In our society relative poverty is defined by comparison with your peers. Can you appear in public without shame? Are your children embarrassed at school? Do you have to ride the bus to Wal-Mart? It has nothing to do with begging on the streets or sleeping under bridges. During the Great Depression nearly everyone’s standard of living dropped like a stone but there wasn’t much relative poverty. There is not much sympathy in our culture for the losers. It’s easy to blame them rather than offer compensation for losses that are not their fault. Today’s social attitudes treat such help and support as gifts to the undeserving.
We should remember that per capita wealth has gone up by a lot since that depression. Many average Americans today have cars and houses, not so fancy, but much better than those their grandparents had. They travel on freeways, not dirt roads. Their houses have washing machines, not tubs in the basement. We are fortunate. Rich people’s cars don’t go any faster. They may have private yachts; we can go on Caribbean cruises. It’s not right to envy those who have more than we do. It’s only a matter of degree, except for homeless people who have nothing. Don’t be too hard on the rich. They are human too, and put their pants on one leg at a time. They have nice cars and houses since they can afford them. But actually, they’re not that clever. They and their sophisticated financial advisors didn’t see the crash coming and they lost barrels of money. Nobody likes to lose so much. But they didn’t lose everything. They were hit hard but not devastated. They could keep their inner attitudes toward income and wealth. One of F. Scott Fitzgerald’s short stories, [2] begins this way:
“Let me tell you about the very rich. They are different from you and me. They possess and enjoy early, and it does something to them, . . . makes them soft where we are hard, and cynical where we are trustful, in a way that . . . unless you were born rich, it is very difficult to understand. They think, deep in their hearts, that they are better than we are because we had to discover the compensations and refuges of life for ourselves. Even when they enter deep into our world or sink below us, they still think that they are better than we are. They are different.”
Having ample money gives the power of choice in everyday life. If you have nothing you have few choices. A rich man has wider choices, as you can imagine. “Should we get a new Lexus this year or take the yacht to Tahiti? Let’s do both.” A yacht and crew will sustain a hundred jobs for a year, maybe more. Investing in a startup company might result in 20,000 new jobs if it succeeds. Making campaign contributions to friendly Congressmen could affect millions for good or ill. A very rich man has left necessities far behind. His wants, what we call luxuries, support his life style.
Finally we have to notice that there are real living human beings in society who are focused on things beyond the grubby world. Maybe they’re searching for God or writing the great American novel. Their concerns are outside of the economic sphere. There’s the absent-minded professor who doesn’t know when to come in out of the rain. There are other folks who stand outside of the economy. University of Wisconsin Professor of Education Dr. Constance Steinkuehler has studied the sociology of video gaming. I listened to an on-line lecture [3] she gave in 2010. It struck her that the social networks used by gaming devotees were free of the usual prejudices of race, class and gender. In their internet discussion forums they were anonymous. They interacted with no knowledge of each other’s ages, locations, jobs, or positions in society – only their overriding interest in video games. She was impressed by their lack of absolutism and their willingness to share data and ideas, and to use evidence-based argument as compared with surveys of American society in general. She wrote to some of them and was told, “We’re not being scientific; we’re just trying to cheat the game.”
There is an amazing similarity between their anonymous discussions and those described by John Rawls in his book A Theory of Justice. In it, he describes a hypothetical method whereby people can talk and argue about ethics and justice in life situations without being actually, personally, involved in them. He postulates a condition he called the ‘original position’ in which people ‘draw a veil.’ They do not know, or remember, what their own station in society is or will be, whether they’re rich or poor, male or female, young or old, etc. Here in the original position they can try to agree about which outcomes are good or bad in a given situation, knowing they will have to live their real lives with the decisions they arrive at. He shows this procedure can lead to what he calls justice-as-fairness.
Here, in real life, we see the video-gamers acting much like Rawls’ philosophers. In the gamer’s version of the ‘original position’ they’re trying to agree on how to deal with gaming problems they will face. It’s uncanny. Without Dr. Steinkuehler’s work we’d never know that some video game addicts are living by high philosophical principles in a totally non-economic way. If you are “thinking like an economist” you’d think it was impossible, but it’s true.