The Fundamental Problem with Economics
October 15, 2018
Author: Bianca Yang
Economics, as defined by Wikipedia, is the social science that studies the production, distribution, and consumption of goods and services. So,economics is effectively a study of resource allocation. And yet, isn’t it ironic that economics can’t solve problems like war, poverty, homelessness, rising housing prices, unemployment, natural resource allocation, climate change, stagnation and collapse of the hinterlands or rural areas, hunger, even though all those problems are arguably just resource allocation issues? So we are clear about how the above problems mentioned are resource allocation problems, I’m going to spell it out below:
- War: Fight over resources like people, land, oil, water, money, power.
- Poverty: Uneven distribution of financial resources.
- Homelessness: Uneven distribution of financial and housing resources.
- Rising housing prices: Uneven distribution of population.
- Unemployment: Uneven distribution of financial resources and opportunity.
- Natural resource allocation: Uneven distribution of natural resources.
- Climate change: Improper management of natural resources, primarily caused by excessive use.
- Stagnation and collapse of rural areas: Uneven distribution of wealth across landmass which causes people to mass migrate to cities and aggravate rising housing prices, unemployment, homeslessn, and poverty.
- Hunger: Uneven distribution of food resources.
Is it clear now that economics, for all the Nobel Prizes that have been awarded to scholars of the field, and for all the priority it takes in the minds of our government, has failed to serve society.
Why has economics failed? What fundamental assumptions has economics made that have distorted its models? It has ignored the humanity of its subjects. It has ignored fundamental human needs and desires and sought to capture us as computers. Rather than speak of motivation or desire for purpose and fulfillment, economics has quantified our decision-making process into cost-benefit analysis or utility calculations. Rather than understand limits to growth and place appropriate priorities on what we should be growing, economics has placed growth on the central pedestal and urged, no, demanded that governments, businesses, all entities worship growth as the central engine for their existences. And what growth is valued? Growth of numbers! We’re talking numbers like income, revenue, headcount, MAU. But the ultimate number is income growth! We want to see consistent 50% revenue, income, MAU growth because how else could a business be healthy and happy if it weren’t growing? To stagnate is the lot of old people, and we all know how they end up.
Just as it is reductionist and insufficient to quantify performance of a machine learning model with one error statstic, it is insufficient to quantify progress and contribution to society by the one metric of growth or even the two metrics of growth and size. Have you ever considered it paradoxical that, the bigger companies get, the more they want to develop small subunits? They realize that at some point, the energy required to maintain a large system outstrips the benefit of the large structure and that so-called economies of scale disappear beyond a certain size. So they split, and they split, because they want to stay small and scrappy. They want to keep up with the young upstarts that are threatening their monopolies. They want to feel young and alive again.
But the drive for small is driven by productivity numbers. It disregards the real reason to be small: to allow for each member of the group to contribute in a significant way towards the group’s objective. If you believe that teamwork can be defined as individual commitment towards a group effort then surely you realize that you cannot inspire individual commitment with Powerpoints about group productivity. People become motivated when they believe in the objective. Motivation must spring towards an objective. Thus, in order to effectively inspire, form, and lead groups to achieve great things, you must identify and clearly communicate the fundamental objectives. You must ask that each person commits to the project on the basis of alignment of objectives with personal priorities. Only then will you get true commitment and progress.
This is precisely the kind of human behavior that economics ignores. It disregards the contribution of a community leader towards morale and community cohesion because his productivity cannot be quantified. You cannot run A/B tests on having this leader or not having this leader because people change around and in between the leadership changes. There is no control group because people are complicated, and unexpected, and this is what makes people beautiful and wonderful. And, again, economics seeks to harden people’s hearts, to encourage them to view the world in terms of base calculations of utility, to accept selfishness, to believe that incentives are what creates behavior, to encourage greed, and to discourage long-term thinking. Economics draws people away from the higher values in life. In fact, economics discourages the construction of such hierarchies of good and bad in life, preferring the spectrum of relativism that utilitarianism and discounting can provide. Rather than pursuing a goal based on higher values of beauty, love, compassion, brotherhood, sustainability, or stewardship, economics asks that you put away your humanity (not your cell phone) so you can make “rational” decisions.
It is this thinking that has plagued us for too long. We are rapidly losing our natural environment. We are rapidly depleting natural resources. We have lost the good-old-fashioned values of decades past. We have lost trust. We have lost compassion. We have become enamored with competition. We have lost the American Dream. We have lost the family. We have lost all that feeds our souls, all that really matters to us, in favor of what? More money? Bigger cities that are plagued with disease, filth, homelessness, aloofness, coldness, loneliness, unemployment, indifference, poverty? Overcrowded vacation destinations like Hawaii, Jamaica, Tahiti, Aspen? Longer hours? More wars? An increase in exitenstial crises? An increase in belief in pointlessness in life? Increase in terrorism and corruption?
If these aren’t the things you value, you can begin to turn around your life by simply choosing to pursue those things which will truly give you personal fulfillment. It’s not death that you should fear; it’s living a bad life that should keep you up at night.