INTRODUCTION
We all know that the economy has problems. Politicians continually talk about how wonderful or how terrible it is. Production, employment, national debt, the Dow Jones and so on. Pleasing or alarming, the talk goes on. Our personal problems are more important but money and its security are never far from our minds. Can I make the mortgage payment? Am I going to get laid off? Can my business meet payroll? Few can live without such thoughts pressing upon them. Maybe Henry Thoreau was an exception. He lived alone at Walden Pond but he didn’t do it for long.
So, when I looked into economics I thought I would study how it worked; the nuts and bolts, the gears and levers. Perhaps I could understand why it was the way it was and how it came about. Was it supposed to be like that? Had anyone really figured it out? Was it a free-for-all or did the movers and shakers actually run things? These questions had grown upon me over the years. They were curiosities, nothing more. Here are a few that got me to thinking:
I saw that people’s politics usually decided their views on economics. It was quite noticeable. At neighborhood picnics my dad, a New Deal Democrat, and a friendly Republican economics professor would josh each other about politics and the economy. They were always miles apart. There was never a meeting of minds. It was true of Republican and Democratic politicians too. It seemed to be an inner, personal thing like left- and right-handedness. They saw things from opposite ends of the proverbial ten-foot pole. “Wealth creation” vs. “trickle down.” “Higher wages mean higher prices” vs. “higher wages mean more customers.”
Many of the business people I came to know were instinctively against all taxes, in the gut. It seemed to hit them where it hurt. True, their profits and incomes were not predictable like salaried employees, but business taxes moved up and down with profits. Their taxes were not under their control but neither were strikes, supplier prices, or customer demand. Why did they have such a visceral reaction against taxes, not just their own but everyone’s?
I found more annoying tidbits: I could never find a description of the economy-as-a-whole. Instead I learned of several theories, each espoused by a leading (or famous dead) economist. There was the invisible-hand, laissez-faire, free market theory. There were the supply side, demand-side, and ever-popular trickle-down ideas; then the Marxist, Keynesian and New-Deal stimulus theories; there were the Chicago, Austrian and Ayn Rand schools, leaving aside the National Socialist economies of Europe. Each of them had a hand on the elephant, so to speak, insisting that their part was the whole. Worse yet, some of them had no grip on the elephant at all but claimed their description was the way the elephant ought to be. They talked past each other and formed ‘schools of thought.’ They were like branches of natural philosophy or alchemy as medicine once was with its black humours and leeches. Also, politicians were always good for laughs: when the Iraq war began, President G. W. Bush was asked how the American people could support the war effort. He might have said, “Iraq has oil which will pay for it” or “buy U.S. Treasury bonds.” Instead he said, “go shopping.”
There were other dissonances: advertising supported television, sports events, and retail sales. But advertising only went after people’s wants and desires: “You have bread; here, try cake – no, no, this cake!” “Ask (rather tell) your doctor about this new pill!” At the same time many needs were not being provided for. Businesses always wanted to be the fastest-growing not necessarily the biggest in wealth, revenue or return on investment. Why was that? Although their stated aim was to maximize profit and shareholder return they did not go in for cheating, fraud, or deception on any significant scale. There were evidently more parts to the capitalist creed. Why were these left unstated, in the background?
Economics has been called the dismal science because of its heartlessness. In a society of rational self-seeking individuals, the capable and talented people would supposedly rise to the top by hard work while the ignorant and afflicted would remain at the bottom in spite of their best efforts. Those who didn’t make an attempt were ‘lazy’, and lumped in with the afflicted. This uncannily resembled the Calvinist doctrine of predestination, where the few are chosen by God as the Elect while the many are not. Economic theorists seemed not to have noticed this parallel. Was it unfair to foist this unpleasant doctrine onto them because theology isn’t their field? Or is the dismal science actually founded on religion?
I found even more incongruities as I dug into things. Adam Smith, the 18th century hero of today’s conservatives, proclaimed the market as the source of economic prosperity and stability. But he also wrote that the government should build highways, harbors and other public works because the market would not. The staffers in Reagan’s white house who proudly wore their Adam Smith ties didn’t get that last part of the message. Lots of conservatives still don’t. Smith’s books are very long. Not many people read them all the way through.
In spite of all these obvious problems, economists were called into the councils of business and government. Their expertise was needed. Important decisions had to be made. Often things didn’t work out but, after all, the world is complicated. President Harry Truman joked about one-handed economists: “On the one hand, but on the other hand. . .” Every economic forecaster and columnist had a different approach. The dismal science might be dismal, but it was certainly no science! There is a story from the heyday of the Soviet Union: on May Day the latest weapons were paraded in front of the Kremlin. Tanks were followed by tractors pulling missiles. Behind these were pickup trucks carrying men in suits. The Party boss asked the Defense Minister about the men in suits. He explained that they were economists, and “their destructive capacity is incredible.”
As the picture filled in I saw that economists, after a fruitful beginning, had become stuck in a rut for a very long time. What was the problem here? They had fallen in love with the theory of a free market, a timeless ideal, and didn’t know how to break off the affair. A few had doubts but the theory was oh, so beautiful. It had become familiar and then became ‘received wisdom.’ They appeared a bit like antique car enthusiasts, talking up their favorite models and polishing the hubcaps. Careers had come to depend upon it. This situation lasted well into the 20th Century. Some changes began in the 1940s but were neglected because they didn’t fit the reigning theory. Some green shoots have recently appeared. Hopefully they will grow into small bushes and someday shade out the noxious weed of laissez faire.
I have arranged the following sections in a way that makes sense to me:
Humankind started with nothing and stayed that way for a very long time. What we now call the Economy is a relatively new thing. It is a great success but it also has troubles. Early theories about the economy were plausible, even beautiful, and were hard to give up. They were based on scarcity as the basic concept and equilibrium as a necessary assumption. Many variations of equilibrium models were developed but they all ran up against the ‘real world’ which didn’t behave as they predicted. Well, the world is complicated. Today’s economic theories have difficulty in describing how money and credit operate; what they are and how they drive the economy. Similarly, theory doesn’t seem to have a good handle on capital, economic growth, the distribution of wealth, and how all of them develop over time. Maybe that’s asking too much. It seems to me that economics is based on an ideology or world view that prevents an open-minded approach to its subject.
I am still a poor, puzzled student of economics but I believe I can see the big picture. A real economist can show up flaws in my thinking but I can now see that the emperor has no clothes, and I can point to the places where I think economists fear to tread.