There is something blank and incomprehensible at the center of our economy

moneyMy undergrad degree was in Economics, and for some years I worked at the World Bank and called myself an economist. However, I don’t really believe in economics. I don’t mean that in the way that most hip young economists mean it. Most of them mean, “Some core economic models were oversimplified or flawed, so let’s scrap them and replace them with better ones!”

For instance, most modern economists accept that human behavior is somewhat irrational. For instance, people hate to lose things more than they care to gain them. This recent article in Slate explains that concept pretty well, in relation to reclining and airline seats. 

And those economists are all like, “Well, okay, so lets invent this concept called loss aversion and work that into our models!” And, by systematizing and defining human irrationality, they hope to eventually develop a better understanding of why things are the way they are.

No, when I say that I don’t believe in economics, I mean that I question whether there are any coherent principles that underlie human society.

For instance, something that I’ve always wondered about is why finance people make so much money. It doesn’t make any sense. Economists have demonstrated, over and over, that almost all professional investors are terrible at their jobs. Most actively-managed mutual funds, for instance, don’t outperform index funds (which are funds that just go up and down as the stock market goes up and down). That means that they actually do worse (when you factor in management fees) than not managing your money at all. But people still get paid millions of dollars to run those mutual funds.

Why?

Also, why is it so hard to be a finance person? Given the fact that their jobs require zero skill (because they’re not good at them), why do you need to have such high qualifications and such a sterling education in order to get a finance job?

What is up with this whole system? Why does it exist? Why is the most lucrative and most exclusive career path in America also one of the most useless?

It doesn’t make any sense. It doesn’t have anything to do with economics or productivity or any kind of cooperation. Instead, it’s some weird form of capture, combined with social signaling. It’s not so much an economic transaction as it is a kind of warfare: a group of people have forcibly inserted themselves into a portion of the economy and have pried open a niche that is then filled with other people like themselves.

And there are things like this all through the economy. For instance, why is the supply of doctors artificially constrained? Why don’t we make it easier for foreign doctors to practice here? I know that the American Medical Association institutes policies to limit the supply of doctors, but why do we, the people, allow it?

Whenever you delve too deeply into economics, you get to politics. And whenever you look into politics, you start to see the raw and aggressive use of monetary power in order to deform the economic system. Money perpetuates itself. And not in the manner of capital, where money is put to productive use. Instead, money is like a river. It gushes through the landscape, cutting a path for itself, and eventually coalesces with other money, to form bigger and more powerful streams. And it doesn’t seem to have anything to do with economic production; it’s about something else. It’s about finding ways to jam up the works of economic production and getting between the people and something they need and then using that position as a way of generating opportunities to cash in as the middleman.

And I don’t really understand any of it. In classical economic thought, peoples’ pursuit of their economic self-interest leads to efficient use of resources. But now we know that people don’t always pursue their economic self-interest. In fact, they often don’t. And we know that the way people act isn’t particularly sensible or efficient. Instead, it’s all a big, unsightly, nonsensical mess.

 

6 thoughts on “There is something blank and incomprehensible at the center of our economy

  1. David Pfau

    I think you just became a Marxist. I don’t mean that in a bad way – America could probably use a few more.

    1. R. H. Kanakia

      I think government planning of the economy is not possible. I don’t really know the answers. I wish I could just be all non-statist and say that government is the problem and not the solution. That is a very attractive belief. Probably the solution, though, is to just do whatever Finland does. They seen pretty well-managed.

      1. Becca

        I accidentally attended a lecture last week on how Finland has everything under control and everyone is happy, except then they were hit by the economic crash so now things are actually not in control. There is no solution after all. 😦

        1. R. H. Kanakia

          Let’s go back to “I accidentally attended a lecture about Finland…”

          What? Why? What are you doing? What’s happening? Also, I am sad about Finland. I always assumed they knew what was up.

          1. Becca

            It was my first day of orientation at my new job and I was meant to be attending a hosted lecture on digital preservation, but somewhere there was a mixup and I ended up at a lecture on the Finnish education system. It was quite a good lecture on the Finnish education system, for the record!

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