The Wealth of Nature. John Michael Greer

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СКАЧАТЬ du jour is the right thing to do. Very few people are willing to pay to be told that they might as well flush their life’s savings down the toilet, even — indeed, especially — when this is the case. During and after the crash, by contrast, most people have enough demands on their remaining money that paying economists to say anything at all is low on the priority list.

      This rule applies to professorships at universities, positions at brokerages and many of the other sources of income open to economists. When markets are rising, those who encourage people to indulge their fantasies of overnight unearned wealth will be far more popular, and thus more employable, than those who warn them of the inevitable outcome of such fantasies; when markets are plunging, and the reverse might be true, nobody’s hiring. Apply the same logic to the future of industrial society and the results are much the same: those who promote policies that allow people to get rich and live extravagantly today can count on an enthusiastic response, even if those same policies condemn industrial society to a death spiral in the decades ahead. Posterity pays nobody’s salaries today.

      The second of the forces driving bad economic advice is shared with many other contemporary fields of study: economics suffers from a bad case of premature mathematization. The dazzling achievements of the natural sciences have encouraged scholars in a great many fields to ape scientific methods in the hope of duplicating their successes, or at least cashing in on their prestige. Before Isaac Newton could make sense of planetary movements, though, thousands of observational astronomers had to amass the raw data with which he worked. The same thing is true of any successful science: what used to be called “natural history,” the systematic recording of what Nature actually does, builds the foundation on which later scientists erect structures of hypothesis and experiment.

      Too many fields of study have attempted to skip these preliminaries and fling themselves straight into the creation of complex mathematical formulas, on the presumption that this is what real scientists do. The results have not been good, because there’s a booby trap hidden inside the scientific method: the fact that you can get some fraction of Nature to behave in a certain way under arbitrary conditions in the artificial setting of a laboratory does not mean that Nature behaves that way when left to herself. If all you want to know is what you can force a given fraction of Nature to do, this is well and good, but if you want to understand how the world works, the fact that you can often force Nature to conform to your theory is not exactly helpful. Theories that are not checked against the evidence of observation reliably fail to predict events in the real world.

      Economics is particularly vulnerable to the negative impact of premature mathematization because its raw material — the collective choices of human beings making economic decisions — involves so many variables that the only way to control them all is to impose conditions so arbitrary that the results have only the most distant relation to the real world. The logical way out of this trap is to concentrate on the equivalent of natural history, which is economic history: the record of what has actually happened in human societies under different economic conditions. This is exactly what those who predicted the housing crash did: they noted that a set of conditions in the past (a bubble) consistently led to a common result (a crash) and used that knowledge to make accurate predictions about the future.

      Yet this is not, on the whole, what successful economists do nowadays. Instead, a great many of them spend their careers generating elaborate theories and quantitative models that are rarely tested against the evidence of economic history. The result is that when those theories are tested against the evidence of today’s economic realities, they fail.

      The Nobel laureates whose computer models brought LTCM crashing down in flames, for example, created what amounted to extremely complex hypotheses about economic behavior, and put those hypotheses to a very expensive test, which they failed. If they had taken the time to study economic history first, they might well have noticed that politically unstable countries often default on their debts, that moneymaking schemes involving huge amounts of other people’s money normally implode and that every previous attempt to profit by modeling the market’s vagaries had come to grief when confronted by the sheer cussedness of human beings making decisions about their money. They did not notice these things, and so they and their investors ended up losing astronomical amounts of money.

      The inability of economics to produce meaningful predictions has become proverbial even within the profession. Even so mainstream an economic thinker as David A. Moss, a Harvard Business School professor and author of the widely quoted and utterly orthodox A Concise Guide to Macroeconomics, warns:

      Unfortunately, some students of macroeconomics are so confident about what they have learned that they refuse to see departures at all, preferring to believe that the economic relationships defined in their textbooks are inviolable rules. This sort of arrogance (or narrow-mindedness) becomes a true hazard to society when it infects macroeconomic policy making. The policy maker who believes he or she knows exactly how the economy will respond to a particular stimulus is a very dangerous policy maker indeed.⁶

      Yet this understates the problem by a significant margin, because a great many of the pronouncements made these days by economists are not merely full of uncertainties; they are quite simply wrong. The quest to turn economics into a quantitative science in advance of the necessary data collection has produced far too many elegant theories that not only fail to model the real world, but consistently make inaccurate predictions. This would be bad enough if these theories were safely locked away in the ivory towers of academe; unfortunately this is far from the case nowadays. Much too often, theories that have no relation to the realities of economic life are used to guide business decisions and government policies, with disastrous results.

      The Failure of Markets

      The third force driving the economic profession’s blindness to the downside is more complex than the two just discussed, because it deals not with the professional habits of economists but with the fundamental assumptions about the world that underlie economics as practiced today. Perhaps the most important of those is the belief in the infallibility of free markets. The Wealth of Nations popularized the idea that free market exchanges offered a more efficient way of managing economic activity than custom or government regulation. The popularity of Adam Smith’s arguments on this subject has waxed and waned over the years; it may come as no surprise that periods of general prosperity have seen the market’s alleged wisdom proclaimed to the skies, while periods of depression and impoverishment have had the reverse effect.

      The economic orthodoxy in place in the Western world since the 1950s, neoclassical economics, has made a nuanced version of Smith’s theory central to its approach to market phenomena. Neoclassical economists argue that, aside from certain exceptions discussed in the technical literature, people make rational decisions to maximize benefits to themselves, and the sum total of these decisions maximizes the benefits to everyone. The concept of market failure is part of the neoclassical vocabulary, and some useful work has been done under the neoclassical umbrella to explain how it is that markets can fail to respond to crucial human needs, as they so often do. Still, as already pointed out, neoclassical economists have consistently failed to foresee the most devastating examples of market failure, the speculative booms and busts that have rocked the global economy to its foundations, or even to recognize them while they were happening.

      This is not the only repeated failure that can be chalked up to the discredit of the neoclassical consensus. Social critics have commented, for example, on the ease with which neoclassical economics ignores the interface between economic wealth and power. Even when people rationally seek to maximize benefits to themselves, after all, their options for doing so are very often tightly constrained by economic systems that have been manipulated to maximize the benefits going to someone else.

      This is a pervasive problem in most human societies, and it’s worth noting that those societies that survive over the long term tend to be the ones that work out ways to keep too much wealth from piling up uselessly in the hands of those with more power than others. This СКАЧАТЬ