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Economics is Useless

Entry 1090, on 2009-09-16 at 22:09:43 (Rating 3, Politics)

Before I start here I should say that I really don't know an awful lot about economics but I'm going to criticise it anyway. I'm quite prepared to be corrected on any points I make here but I think I do have reasonable cause to think a lot of what I'm saying is true.

The aspect of economics I'm most suspicious of is the market, specifically the idea that the market should be left alone to achieve the best outcome for society in general and that the market makes the best decisions based on its inherent processes.

A couple of recent news articles have lead me to doubt this idea. Actually, to be more honest, I've always been deeply suspicious of the concept of free markets being the best model for economic welfare. Anyway, the two articles were these: first, a survey in the US showing people didn't want free market models to control greenhouse gas emissions and preferred government regulation; and second, a reminder of how the 2002 Nobel prize for economics was awarded to a psychologist for a theory (Prospect Theory) which effectively showed the standard economic free market model doesn't work.

If the people of the US, which is usually thought of as the home of the free market, don't trust it then who does? It seems that in the US big business has hijacked the "democratic" policy and it is now far from being "the land of the free". In fact its more like the "land of the slaves of big corporations". I know I'm reading a lot into a survey on a single issue which Americans don't even think of as being the most important current problem although they do accept it as being real, but I think there's ample evidence from other areas that this is happening.

And how many subjects hand out Nobel prizes to researchers from other subjects which cast a lot of doubt on the central tenets of that area? For example, has there ever been a biologist given a Nobel prize for showing a major physics theory is probably wrong? There's none that I can think of. To me this shows that economics isn't really a strong science (maybe not a science at all) and our whole understanding of the area should be re-examined. I do realise that some economists do doubt the standard free market model but the majority seem to support it, seemingly without any real evidence to show that it works.

I have done some brief research on the theory the Nobel prize was awarded for and it seems to basically show that people do not make sensible choices in a free market situation. The collapse of the global financial system seems to be in agreement with this idea. Its only through constant intervention (effectively corporate welfare handouts) that the whole system is propped up - until the next time it fails.

But even if the model worked without periodic collapses it still wouldn't really be a suitable model for our whole society. Despite what many people will say it is based on short-term, self-centered greed. Its really quite a tribute to the propagandists who support the system that so many people support this as being OK and even admire the people who effectively parasitise off the rest of us.

So we really need to throw out the whole competitive, private enterprise model and look for something better. The first step would be to make the ridiculous system of trading currencies and imaginary financial packages illegal. We then need to find a model for financing things that really matter, such as long term scientific research into areas with no immediate pay-off - perhaps with no financial payback at all.

Here's some example projects I would throw whatever money is necessary into: fusion energy, colonising other planets, stopping global warming. It doesn't matter what these cost really, just find the money. If hydrogen fusion cost a trillion dollars that would be nothing compared with the advantages. Why has the US spent that much on saving some useless financial institutions instead? Simply because our whole economic system is wrong. Let's start ignoring the economists and business leaders and let's make some real progress instead. Following the current path will only lead to disaster.


Comment 1 (2499) by Jim on 2009-09-16 at 23:13:12: (view recent only)

Yet again you dismiss the existing system without offering a better alternative. Like you say yourself on many occasions "its the worst system apart from all the rest".


Comment 2 (2500) by Anonymous on 2009-09-16 at 23:15:36: I agree. Good point Jim.


Comment 3 (2501) by OJB on 2009-09-17 at 09:32:32:

OK, fair enough, you do have a point. I have two comments to make though: first, before looking for something better we first need to admit there are problems with the current system we have (one step at a time); second, generally I don't call for the complete demolition of the current economic system, just to moderate and control it (at least until something better does become available).


Comment 4 (2502) by SBFL on 2009-09-20 at 08:50:07:

WTF? In any other post I have to fight tooth and nail to get even a semblance of a concession from OJB, yet after one comment from each Jim and Anon, they receive a "OK, fair enough, you do have a point." from OJB...go figure! Obviously I need to re-evaluate my strategy of argumentation!


Comment 5 (2503) by SBFL on 2009-09-20 at 09:23:18:

As you may recall I am generally in favour of the free market, but as Jim indirectly inferred it is the worst system except for all the rest! The same approach applies to democracy – as those famous quotes state. Also like you, I don’t profess to be an expert on economics but I like to think I’ve listened and learnt a few things in my life to date. However I would say that the pure economist POV of the free market is a good starting point. From here we need to tweak it to ensure balance and fairness because every system is open to exploitation. Every system. Why I think the free market is a good start is because it is in synthesis with the human mind. If a system is not in line with human nature then it will eventually fall down. We have seen this with various forms of communism. But the human mind/nature is fraught with weaknesses and therefore a solid free market system must not be theoretically pure, but must be adjusted to compensate for the imbalances that will occur from human nature: greed, selfishness, unfairness, etc. these are the aspects that the left often focus on (as to what is wrong wit the right). But the free market also allows human nature of a more positive nature. Aspects such as supplying need, innovation, growth, and individual freedom (something we learn from an early age). What we all really want is a sense of justice in the free market, and a justice that strengthens the good aspects and minimises the bad that are inherent in the pure free market form. Sadly we have to rely on our politicians to apply this justice and of course (on both “sides”) often vested and ideological interests prevail. Hence the ongoing battle. Of course we already have some free market supervisors in the way of the Commerce Commission and the Reserve Bank, but those high level controls are not in dispute at the details we discuss on an everyday level. I guess my view is that the free market is the only way because it resonates with human nature, it up to us now to apply it in such a way (by say, reasonable regulation) so that it is not exploited. Game on.


Comment 6 (2504) by OJB on 2009-09-20 at 09:23:30:

Re comment 4: Yes, looks like you're doing something wrong doesn't it! :) Of course, I did start this post with "Before I start here I should say that I really don't know an awful lot about economics" which indicates a certain initial lack of commitment to the theme in general!

This really is the big question though: if there are problems with any current system what is better? That's where I tend to get a but stuck, but, as I said above, at least let's admit the faults and not pretend everything is fine!


Comment 7 (2505) by SBFL on 2009-09-20 at 11:12:36:

Maybe you should start every post with that disclaimer...? ;-)

Well okay not the Apple ones because we don't really know much about them but they're always good fodder to stir you up...

I think the choice of system is a no-brainer (i.e. free market), we just have to design it right.


Comment 8 (2506) by OJB on 2009-09-20 at 17:15:59:

Ah yes, very amusing... ha ha!

Apple ones... stir me up? That must be someone else you are thinking of. Why would I want to defend a big, evil corporation like Apple? :)

This is the problem though, isn't it. The idea that there is no alternative to the current system (its a "no brainer"). I always find it ironic when people use that phrase!


Comment 9 (2509) by SBFL on 2009-09-23 at 10:12:56:

Not really a problem. When applied right it serves us well. Overall, and despite its "misapplications" it has increased the general populations' wealth. China is the classic example of recent years I guess.


Comment 10 (2512) by OJB on 2009-09-23 at 15:03:38:

Unfortunately the economic model we use does have huge deficiencies, not the least of which is the fact that it requires continual growth. This growth is achieved through exploitation: of cheap human labour (China for example) and of the environment (pollution) and use of cheap, non-renewable resources (oil). This cannot last and the system must change.


Comment 11 (2513) by SBFL on 2009-09-24 at 08:57:30:

What do you mean by "it requires continual growth". I don't follow this sorry.

I didn't realise exploitation of cheap labour was a recent phenomenon in China. Remind me again of the average wage in China before they started to gradually take on capitalistic ways in the past two decades.

Oh, and pollution - I didn't realise that didn't exist in societies without the free market. "Clean, green Cuba"...yeaaaaahhhh....


Comment 12 (2515) by OJB on 2009-09-24 at 19:43:26:

If the economy isn't growing its officially thought of as being in recession hence my claim that it requires continual growth. How much is enough? Nothing is ever enough with capitalism.

There's a big difference between a local agricultural economy and one where big foreign companies force people to work in dangerous conditions for next to nothing just to make more money for themselves.

Biggest polluters in the world? USA, China, India. Reason: exploitation of natural resources to maximise profits for multinational corporations. Cuba? Irrelevant.


Comment 13 (2518) by SBFL on 2009-09-25 at 07:30:21:

All your points are valid (ignoring the rhetoric), but I guess my point is that none of them are exclusive to the free market. The free market encourages growth (rather than requiring it) and yes growth then gives to more output incl all its downsides (e.g. pollution). But it has upsides too. The management of the outputs cannot be blamed on the free market system alone. We should be able to control pollution, fair labour, esp as a result of growth. If we are not up to the grade, then blame the management, not the growth itself. Consider the free market creating opportunity, but how we execute that opportunity is where our focus must lie. Hope I am making some sense!!


Comment 14 (2522) by OJB on 2009-09-25 at 18:32:54:

Yes, as I have indicated on various occasions, I haven't got a better alternative so I guess we just have to make the most of what we've got. I just want to make it clear that I have no confidence at all in pure markets, laissez faire economics, and 100% capitalism. Its all about balance.


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