Why Economists Miss the Mark
Theories start with assumptions. Get the assumptions wrong and you are not likely to come up with an accurate theory. Most economists and social engineers make two inaccurate assumptions that sow the seeds of the disaster which eventually ensues when their theories are put into practice. The first is that humans are rational, intelligent and operate with knowledge. The second is that the goal and measure of an economy is money, the use of energy (mechanical slaves), and the number of material good at their disposal.
The assumption that humans, including the author and the reader, are not all that smart, is the most difficult to swallow. Man has gone through all sorts of contortions to convince ourselves of how smart and perceptive we are: we were made in the image of God, we have harnessed the power of nature and gone to the Moon, we have made great civilizations… Notwithstanding all that, we are still a social ape better suited to living in small hierarchical groups and simpler environments such as the one we evolved in as hunter/gatherers.
That is not to say that is was easy to survive as hunter/gathers or that it did not require any intelligence. It certainly did and that is why we evolved large brains. But the intelligence that we have reflects the needs of hunter/gathers much better than it does modern life.
Hunter/gathers had to learn about the life cycles and habits of the plants and animals they depended upon. They learned empirically and retained what was used most often and most recently. It was not important whether their knowledge was accurate, only whether it helped them survive.
Humans are vulnerable creatures and we depend on our brains to keep us safe. To learn about danger, we developed what seems today to be a perverse interest in other people’s misfortunes. At the time that tendency evolved, it was highly adaptive as it taught the individual where there was danger.
Humans are social animals who need human contact. In a hunter/gatherer society, being ostracized was one of the worst penalties and meant a slow death. We still carry that fear of being alone. That is why solitary confinement is so harsh and that many people lose their mind when isolated too long.
We are problem solvers and that is how we colonized most corners of the Earth and dealt with changing environments. But our problem solving ability is limited to considering the few most important factors (usually the ones right in front of us) and coming up with short term solutions.
The most important limitation of the human experience is our internal map. Through culture, direct experience and education, we develop a set of interpretations to the events that we perceive. For the most part, we cannot even recognize those things that are not included in our mental map. A simple example is art. A person not versed in some form of art, may get a nice feeling or not from looking at a piece of art. Another person, versed in this form of art will see a lot of nuances and meaning, perhaps even identify the artist. To the artist, there is a world of meaning and value. To the casual observer, it deserves no more than a moment’s glance. As an engineer, I see a lot of meaning in machinery and can spend hours studying one. Most people see no more than the shell of the machine.
The quality of our mental maps has always been crucial to our survival. Most of our mental maps today are geared towards living in ‘civilized’ places and would not last long in the wild. People who have lived exclusively in jungles tend to have a hard time in the city. When we travel to cultures which are different than ours and we do not have cultural context (others of our own culture) we tend to experience culture shock.
Since having an accurate mental map has always been a requirement to survival, people tend to value their views almost as much as life itself. Challenge a person’s mental map and you will feel their ire. This need to have an accurate understanding of one’s environment is so strong that we play tricks on our minds when there are areas we consider important and yet do not have good information to go by. In those cases, we resort to what our peers think and make it our own, without challenging its accuracy. In the extreme, we make up abstract stories (magical thinking such as superstition) to fill in the gaps. Our discomfort with the flimsiness of these constructs is such that we build walls of legitimacy around them and threaten those who challenge our construct. The challengers are ostracized or otherwise punished.
Put together, these human characteristics give us a person of limited perception ability, with a limited mental map, which solves the problems in front of them with the available tools. Solving problems usually means getting as much as possible with the least amount of effort and risk. That perception of effort and risk and what is of value varies according to people’s mental maps.
It is this simple reality that lead workers under communist rule to minimize their effort and output. They see that they will get no more compensation whether they work hard or do little. The larger picture of the entire society and them with it, going downhill is too abstract. So communism and some forms of socialism failed. In a free market economy, capitalists have to work hard and face many risks to make it. But when they do succeed to make more money than they can reasonably spend, many do not stop. They continue to scramble for more power and wealth, even if it compromises the society in which they live. In their mental map, they deserve more for they perceive that they have worked harder, smarter… than others. They rationalize the low pay and long hours their employees and the employees of their subcontractors endure. At some point, the free market falls apart because the market is not free and humans cannot be asked to go against their nature.
For any system to work, it has to see humans for what we are and meet our needs. And that is where the second false assumption comes in. The goal of an economy is not growth or money or ease of life. The only goal an economy can sustain is a sustainable quality of life. Money is merely a tool to aid in the distribution of capitol (things such as food, clothing, houses and the tools to make what we need). Growth is only a way of matching the output to the population and aiming to give people a decent quality of life. When growth becomes a goal in itself, then we have lost the compass and harm to people and our environment will result. Technology too is only a tool. In some cases it makes out life better. But when technology becomes the point, then it causes alienation. Cars have obvious benefits, but they also lead us to live farther apart, spend more time isolated from our neighbors, spend more time commuting and spend more time at work to pay for them. As a society, Americans have more gismos but have less time to enjoy them or their family or friends. The ultimate price for these toys is the insecurity that much of society experiences, being one paycheck away from disaster.
A stable economic system would have to correspond to the needs and limitations of real people. We are a tribal animal with short sights. We are social animals. The only structure that makes sense is a village, small enough so that people can know each other and feel their interdependence. I would propose that each village also be small enough so that one could walk or bicycle to any part of the village easily and that the currency be local. Each village should try to be as self sufficient as possible and yet have something to trade with the outside world. The Internet would be a good analogy for the network of villages, interconnected by some kind of mass transit/freight system that would use a global currency for trade in the items each community could not produce themselves. Each part of the system would have to reflect the need to be individual and yet part of a whole. Each person’s contribution could be measured in terms of its contribution to the village. People are not equal and should benefit from the value of their contribution, but that value should not be exclusively money. As most employers know, too little money is a de-motivator, but high salaries are not a motivator. It is best to give a fair salary and deserved recognition. The same is true in a village where people know each other well enough to value being recognized.
It may not be possible for people to accept such a simple life when their eyes are blinded by years of education and social pressure to value winning the lottery, but perhaps the eventual exhaustion of our natural resources, economic crisis, or global warming will make it real enough for people to reevaluate what is of real value. Some have proposed that we need another flood, and that there might be hope for a few generations after the modern Noah. I am a little more optimistic, I see hope in my children, for they are not as greedy.
by Didier G.