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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

private greed reliably creates social good? « Previous | |Next »
July 7, 2009

Big banks have failed, bailouts measured in hundreds of billions of dollars are not nearly enough, jobs are vanishing, mortgages and retirement savings have been savagely reduced. Didn’t economic theory promise us that markets would behave much better than this in delivering prosperity for all?

Didn't this promise invoke the imagery of the invisible hand and the notion that economic theory has demonstrated that market outcomes are optimal?Didn't this underpin the free-market fundamentalism and the neo-liberal push for deregulation over the last thirty years?

Moircapitalism.jpg Moir

Competitive markets, the economists kept telling us, offer a framework in which, in the memorable words of the movie Wall Street, “greed is good.” Adam Smith’s parable of the invisible hand, the founding metaphor of modern economics, explains why the attempt by butchers, bakers and the like to increase their own individual incomes should turn out to promote the common good.

The same notion, restated in mathematics, is enshrined in general equilibrium theory: free markets have been proved to allow an ideal outcome – meaning that the market outcome is “Pareto optimal,” i.e. there is no way to improve someone’s lot without making someone else worse off.

Conservatives repeated endlessly over the last two decades that government is the problem and the market is the solution–---until 2008. Then the roles the roles were reversed.The economics profession's traditional reliance on models, axioms and mathematics had been mugged by empirical reality. Markets are not efficient since free markets are wild markets.

Maybe we need to return to the political description of the individual as a “citizen” or a “voter” instead of the economic description of the individual as a “consumer”, as a way of questioning the traditional and neo-liberal economic way of thinking.

| Posted by Gary Sauer-Thompson at 10:25 AM | | Comments (5)


As Keynes wrote in "The General Theory of Employment, Interest and Money":

"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back."

However if one is dependent on an academic scribbler, it pays to remember the other part of his scribble:

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

"But mummy, they have no clothes on!"
"Hush dear, if you don't tell them, they won't know".

I'm reminded of George W Bush's exhortation to his fellow-Americans after the WTC attack that they should go shopping, or his exhortation to the Chinese on one of his visits that they should hurry up and get wealthy enough to become a great nation of consumers.

The reduction of human existence to a series of economic transactions where success is to be measured purely by endless growth in GDP is fundamentally a failure of culture and philosophy. I've never understood what free market fundies regard as the measure of a good life, apart from freedom to buy and sell stuff without government interference. Many of them seem to have a thorough contempt for learning or abstract thinking; strip away the resentment and sense of victimhood and it's hard to see anything of substance at all.

If the free market is so good, why hasn't it managed to produce faster or more reliable internet? My connection seems to have some kind of technological bipolar disorder.

Ken, culture and philosophy failed to produce anything nearly as clever or profitable as credit defaults. They were bound to fail. Sitting around thinking deep thoughts never got anyone a private yacht.


You'll find like-minded thinkers at the New Economics Foundation,a UK non-profit group, which has just published its latest report, "The Happy Planet Index 2.0: Why good lives don't have to cost the earth",

Contrary to a brief AFP report that some local newspapers carried, Australia ranks 102nd, slightly ahead of the US, with the top few nations primarily Latin American.