In the world of economics out there in the academic ether, there are lots of Big Ideas about the economy and the way it works. But I listened to an FT Alphaville podcast earlier this week that declared that we’re done with the Big Ideas now, and economists are henceforth going to be winning Nobel prizes for the work that they do on topics that are the economic equivalent of studying the flora in the digestive system of a particular sub-species of starfish, as found in the coastal waters off the north side of an archipelago belonging to an obscure Pacific island.
I’m not clever or informed enough to know whether that prediction is reasonable.
But there are some Big Contradictions that we don’t seem to have settled yet. Mainly, between:
- Free and unfettered markets (farewell regulation); and
- Welfare states (state intervention)
In practice, you get a bit of a mix – but because the free markets fans will see almost any state regulation as being too much regulation, the ideological argument is still very much alive.
I guess that the unspoken rule is that the argument is a bit like Evolution versus Creationism: where all the real scientists know Evolution/Free-Markets to be true and empirically evident, while the Creationist/State-Interventionist cretins are misguided, wishful and unenlightened. Oh, and they’ve caused more bloodshed over the millennia than anyone else*.
*Which has always struck me as a spurious argument in the case of religion. Stalin and Mao managed quite fine as atheistic villains. I feel like we should be declaring that the quest for power and its retention has caused more bloodshed than anything else – and religion was the ultimate power tool back when religion was a given. Today, we’ll just as willingly go to war over an ideal and/or political philosophy. Which in effect counts for much the same thing.
But I’m just not convinced that it’s as simple as that.
Mainly because: when was the last time that your life actually reflected a free market ideal?
As children, we grow up under (hopefully) benevolent dictators in the form of parents. You get bad dictators, of course. But we’re yet to dispense with parenthood as a means to raising children. Although, I guess, you could wait for the free market forces to feed the baby. It’ll probably die – but in the mind of free market economists, that’s just collateral damage. Eventually, the need to propagate will encourage the parents to care for a child at some point, always assuming that they’re rationally self-interested and, you know, not lazy, crazy or stupid.
Then we went to school, where you basically found yourself regulated by a welfare state. You could break the rules, and sometimes there would be repercussions. But for the most part, the school was interested in getting you educated – and that formed a large motivation for the rules. It didn’t always work, because one size never fits all. And sometimes, the practicalities of policing meant that some rules were stricter than they needed to be. But it was all a process.
Finally, you started working, where you discovered that the world is very much a selection of fiefdoms, monarchs and communist states; in which the boss is the autocratic ruler, and all the underlings live in fear and hope to curry favour. In some corporations, working hard meant higher rewards. In other corporations, it doesn’t matter how hard you work relative to your colleague, you all pull out the same paycheck on the 25th.
Perhaps the only real form of free market exists socially. You get to pick and choose your lovers, provided that they also pick you. But inevitably, we end up institutionalising our romantic relationships and turning them into socialist states where everything is shared and regulations exist* with punitive consequences for violating them**.
**Divorce and alimony
The point is, on a smaller scale, we don’t live in a world of free markets. We live in a world filled with corporations (kingdoms) and family units (socialist dictatorships).
The free market hypothesis for political economy is that we just let the corporations (in particular) run around unfettered and do whatever they want. Because, ultimately, what’s good for the kingdom is what’s good for the subjects, and what’s good for the subjects will be longterm survival of the species (so we’ll suddenly end up taking care of the environment and allocating resources efficiently and getting less unequal).
Does that sound remotely plausible?
History has rarely ever demonstrated that what’s good for the kingdom is what’s good for the subjects. More like: what’s good for the kingdom is what’s good for the king. And no matter the size of the kingdom, most monarchs get to their positions in the search for power – and if they want power, they’ll go to war; and with enough war, you get empires; and what was once a free-for-all is back at Hail, Caesar. Or Hail, Mr Koch and Mr Koch. Or Hail, Mr Ma.
Perhaps it’s just me.
But I think that the Big Ideas in economics still ignore the practical reality of being social beings with a need for hierarchy and pecking orders (mostly, the desire to be higher up in both).
Also, I don’t really care about starfish.
In the meantime, here’s a slightly derisive comic on some of the free market pitfalls (email subscribers, if you can’t see this, then here’s the link).
Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.