Oscar Wilde Economics
If capitalism is in perpetual crisis, then so too is its ideological arm: the academic discipline of economics. For those analogically inclined, economists are to capitalism as priests are to Catholicism.
Forgive me this observation, vaguely playful: an economist is someone who gets rich by explaining to others why they’re poor. To this end I argue that the alleged value-neutral rhetoric marshaled by orthodox economists tends to obscure the field’s highly partisan thrust toward the upward redistribution of wealth (from which professional economists as a class clearly benefit) chiefly through the application of 1) rational choice theories and 2) efficient markets hypotheses. Yet despite their implementation of labyrinthine mathematical models, key economists at the London School of Economics (LSE) admitted in 2009 in a letter collectively authored to her Majesty Queen Elizabeth II that they had failed to prognosticate the current crisis because they somehow “lost sight of systemic risks” Excuse me?
But why should we be astonished by the failure of professional economists to account for systemic risk, that is, the probability of system-wide disintegration? The truth is that professional economists overwhelmingly employ neoclassical methodologies premised on the philosophical field of logical positivism, a late 19th century school of thought that swiftly severed epistemology (claims to truth) from axiology (claims to value). For instance, neoclassical economists reject Marxian notions of exploitation (or theft, coercion, colonization) and instead advance the idea that the distribution of social resources produced by market exchanges is innately fair and just when it is allowed to work without regulative friction. Positivism, therefore, provides the theoretical underpinnings for neoclassical economic theory by scientizing (and sanitizing) existence through the production objective generalizations that divorce information from meaning.
But historicizing the academic discipline of economics reveals the fact that it grew out of two larger intellectual traditions that have since been largely jettisoned. The first is political economy, a discipline based on the seemingly axiomatic idea that economic consequences are often influenced by political factors, and vice versa. But political economy itself, oddly enough, first emerged from the womb of moral philosophy.
In The Wealth of Nations (1776), the classically trained moral philosopher Adam Smith famously argued that the pursuit of enlightened self-interest by individuals and companies would benefit society as a whole. His notion of the market's “invisible hand” laid the foundation for much of modern neoclassical and neoliberal economics, but unlike the free market fundamentalists of today, Smith opined that the morality of the market ought to be applied to the democratic field. In fact, he argued that “honesty, thrift, and cooperation,” not unbending self interest, were the keys to a just society and to social solidarity. And here’s the key: Adam Smith's vision was one of harmony between a vibrant capitalist economy resting within a society governed by non-capitalist ethics. (Grow the pie, but distribute growth equitably.)
But by the end of the 19th century, the new field of economics no longer concerned itself with moral philosophy and less still with political economy. Ascendant in the nascent discipline was a conviction that markets should be trusted to produce the most efficient allocation of scarce resources, that individuals would always seek to maximize their utility in an economically rational way, and that such operations would somehow induce the equilibrium of prices, wages, and supply and demand.
As these notions gained legitimacy a new idea emerged that Adam Smith likely would have found revolting—that economics, no longer tethered to the study of morality and politics, could be considered a science. By the beginning of the 20th century, economists were searching for models and theorems that could help to explain the universe and although they were dealing with the behavior of humans, not electrons, they came to believe that they could accurately predict the trajectory of human decision-making in the marketplace. In their desire to have their field be recognized as a science, economists increasingly decided to speak the language of science.
The transition came in 1947, when Paul Samuelson's germinal book Foundations of Economic Analysis for the first time presented economics as a branch of applied mathematics. The application of applied mathematics to the field of economics helped to birth the rational choice theory which rests on the assumption that consumers and producers inform themselves with all available data, understand how the world around them operates, and will therefore respond to the same stimulus with consistency thereby allowing economists to project mathematically how economic actors will behave. Under this paradigm economic actors are thought to make choices based on a rational outlook, available information, and past experiences. Rational choice theory also assumes, of course, equal access to relatively ideologically-free political and economic information.
Let’s consider rational choice theory applied. Neoclassical economists would posit, for instance, that it is rational for a student to seek the highest quality high school education even if it requires her participation in a “busing” or “school voucher” program effectively tearing her from her community. What’s more irrational than deracinating someone from their home? What’s more irrational than insisting that students of color, in particular, abdicate their cultural commitments (traditions) and practices (language, for example) to achieve legitimacy in traditional academic spaces? What’s more irrational that attending schools that aren’t accountable to the communities from which their students come?
Meanwhile, the efficient-markets hypothesis, developed by University of Chicago economist Eugene Fama in the 1970s, has dominated discourse on financial markets. Exponents of the hypothesis posit that the prices of financial assets are always “efficient” because they accurately reflect all the available information about economic fundamentals. Ergo, there can be no speculative price bubbles in stock or housing markets. Further, since markets are self-stabilizing, there's no need for government regulation; but even a cursory exegesis of “efficiency” as a concept will help to falsify the assumptions on which it’s based.
The concept of “efficiency” common to most contemporary economic theories holds that analysis can and should determine the net balance between positive and negative effects of any economic act, event, or institution. But according to economist Richard Wolff, “such a concept of efficiency requires and presupposes, in all its usages, a rigidly and simplistically determinist view of the world, that is, it presumes that analysis can regularly 1) identify all the effects of an economic act, event, or institution, and 2) measure the positivity/negativity of each effect.” (http://www.paecon.net/PAEReview/issue16/Wolff16.htm) In this view, however, any one act, event, or institution has innumerable effects now and into the future and there isn’t any way to identify or isolate, let alone to measure, all these consequences. Therefore, any efficiency measure – in any comprehensive, unconditional, or absolute sense – is possible.
Economic theories, therefore, predicated on assumptions of rationality, efficiency and equilibrium in the marketplace must be subjected to rigorous critique and deep skepticism. We, as human beings, are irreducible to our economic functions; we’re anxious, often irrational, and more complex than most predictive neoclassical economic theories can index. And, as Adam Smith rightly recognized, economic questions inherently assume moral and ethical valuations. What is the market without morality? What is efficiency without ethics? What is freedom without fairness? And what good are traditional economists who know, in the famous words of Oscar Wilde, the price of everything but the value of nothing?