Mythical Economic Man

Last weekend I went a few rounds with my favorite philosophical sparring partner about the way we got into this financial mess.  It’s a discussion that has gone on for decades, and I heard (for the first time) that my wild-eyed tree-hugging self of the 1970’s had something right.

To summarize our relative positions 30+ years ago, I was of the opinion that the best policies would build from the bottom of the economic pyramid upward, while my debate partner felt that we should set policies that reward success at the top, creating more wealth for all.

Her objection to my “liberal” bias was that some people would take advantage of the system and coast along letting everyone else pull the weight.  FWIW, I acknowledged that there would be that element.

Still, I felt that making it easier to succeed on the bottom rungs of the ladder would give plenty of opportunity for those at the top to sell things, provide services, and otherwise profit from a wider, deeper market.

My objection to her theory was that, for the most successful in business, there is never enough, so they would never “spread the wealth” but rather treat those beneath them economically as chattel from which they would always try to take more.

Needless to say, we were both right.  So why do economists get it so wrong?

The answer is that economists think people behave in a rational way to accrue the most long-term economic benefit, when they actually behave the way their emotional needs drive them to behave.

That’s why Utopian visions always fail.

From Marx we saw the Utopian vision of collective ownership of the means of production.  What we got was Lenin and Stalin.

From the Friedmanites and Reagan, we got the Utopian vision of supply-side “trickle down” economics that was supposed to raise everyone’s standard of living.  It would do so by providing more opportunity and more jobs, taking away the drag of government interference.  What we got was Enron, Halliburton, Massey Energy, BP, Blackwater and Cargill.

It turns out that a single corporate welfare hog at the trough sucks up far more of our wealth than all the small-time individual welfare cheats combined.  Of course, even the welfare cheats quickly spend the money they get at the bodega (and the corner drug dealer), so they tend to have a much higher velocity of money, adding far more to the GDP than yet another million dollars in the hands of the owners of Monsanto as they go out to conquer the world with their engineered hybrid seeds.

Then there’s the fact that there are actually dozens of those corporate welfare hogs at a dozen or more troughs.  There’s the farm subsidy trough, the homeland security trough, the military supplier trough, the Medicare part D trough, the Bureau of Land Management (mining, forestry and grazing) trough, the energy exploration trough, and a few others I forget right now.

Clearly corporations that impoverish their potential customers aren’t working in their own long-term best interest, but they can’t separate their amoral striving to maximize profit from the larger reality.  After all, a corporation that outsources its manufacturing to Chinese sweat shops and customer service to Pakistani phone banks while charging as much as the US market will bear can have years or even decades of outsized profits.

At least until every other company outsources too, and there are no customers left.

But there are never actually no customers left.  There are always a small number of people in the laboring classes that have an idea, the drive and the right kind of timing to become wealthy themselves.  The opportunity actually does exist in the capitalist systems to realize the dream.  There are also some who end up depending on charity through no fault of their own, like the aged and frail.

The open question is whether the hard-chargers running the show will actually feel charitable enough to make sure all those who need help to survive get it.  Will they get that help even if they are gay, speak a different language, worship a different god, or have a different skin color?  You need to be able to honestly say “yes” before purely voluntary charity is a viable system civilized people should accept.

On the socialist side of the scale, there are always some people who seize the “common” ownership reins of power and use the control mechanisms of the economy to their own benefit.  There are also, no doubt, a fair portion of the population who really do give as they can to society in exchange for receiving something approximating what they need.  In other words, some end up realizing the socialist dream in those systems, too.

Still, absent the incentive of potential large rewards other than approval and admiration of fellow citizens, can a socialistic system enjoy the benefits of productive people?  Anyone supporting purely socialistic or seniority systems had better be able to show me how most people motivate themselves to do even a good job, much less the best job they possibly can.

Neither system stays purely what the economists imagine, anyway.

Once again, that is because the emotional component of human behavior simply doesn’t fit economists’ models.

I recommend that we think long and hard about what goes wrong and why, and what “bad people” can do within our system before we decide how to change it for the better.

Our problem is not how we lose our competitive edge when benevolent employers coddle their employees in Reagan’s shining “City on the Hill.”  It’s how greedy SOB’s will use the lack of government oversight to line their pockets at everyone’s expense.

Neither is our problem that we’ll lose productivity from spending too much time singing “Kum Bay Yah” in Johnson’s Great Society.  It’s how greedy SOB’s will scam the system to collect when they don’t deserve the help, or collect two or three times their allocation.

But ask yourself this:

Which group of greedy SOB’s is more damaging and expensive to the rest of us and our future generations?  How can we limit the damage from both kinds, or even stop them?

If you can really answer those questions without relying on the assumption that we’re all Mythical Economic Man, you’ll be on your way to supporting a hybrid economic/social model that can work for the long haul.

Until then, you’re just another white-haired Tea Party protester paying less in taxes than any time you were alive, and you’re taking 50 times as much in Medicare benefits as your “lifetime of payments” justify, all the while complaining about big government, except when it signs your check.

In the interest of equal treatment of the lefties, if you can’t support a modified capitalist system that minimizes taxation and regulation of those creating the new wealth, then you’re just another slacker who thinks you shouldn’t have to work overtime to get a wide-screen TV as nice as your neighbor’s, and I don’t have time for that nonsense, either.

hh

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14 Responses to Mythical Economic Man

  1. Bruce B says:

    HH,

    Your posts consistently roast governments and political parties. I’m on board, trust me. Yet your solutions seem to call for a government that gets it “just right.” Just the right amount of taxation on the right people and businesses to raise the right amount of revenue, but not squash incentives. Just the right amount of regulation to make sure everybody plays by the rules. Just the right amount of oversight to keep the drug companies from gouging. Just the right amount of Medicare benefits balanced by proper premiums……..paid for of course, by those that can afford it. What are the odds of any government getting it just right? Or even getting close?

    Bruce

    • hhill51 says:

      Bruce…
      I agree that I want the Goldilocks solution, but really it’s not that. My problem is that we have a situation with a very dedicated corporatist faction that constantly makes use of the tendency of people to compromise in a very cynical way.
      \\
      Here’s an example.
      \\
      At one point not too long ago, it cap-and-trade was the corporatist (American Enterprise Institute) compromise to the issue of CO2 emissions. I even saw Newt Gingrich spend an hour in an interview in 2007 extolling the “free trade” virtues of that as an alternative to simply taxing as a way of charging the full cost of protecting the supply line, extracting (often overseas), and cleaning up after hydrocarbons and coal.
      \\
      Once they got the fools on the left to give up the straightforward method of charging companies for grazing their sheep on common green, they began their campaign against their own compromise, no doubt to move the needle even farther against the interests of the whole community and toward the interests of the private profit-takers.
      \\
      Or the health insurance “reform”…. once again, the current evil from the “left” – the mandate for private coverage – came from that same crew (I think also from AEI). I wrote last year while the debate was going on that I, as a 59-year-old paying for my own insurance, would be happy to pay a 10% over cost profit to join Medicare. Since private insurance is supposedly so much better, and supposedly only making single digit profit, what threat could that possibly be to private insurance? Or were they lying about their profit and efficiency. Check out my post called “It’s What They Do” to see.
      \\
      These are two examples of long-term problems we have that need economic and political solutions, and my desire to have a true hybrid that provides a basic level for all citizens, and premium level provided by private enterprise.
      \\
      On Medicare and Social Security, I think the excess return to those who don’t need welfare is a ripoff. Let those who did well in their careers get their investment back, plus interest, and then cut them off. They shouldn’t be getting compounded 40% IRR on their taxpayer guaranteed “investment”, and they should just get over their sense of entitlement. Let the truly stupid, or unlucky who would be destitute, collect, but not the affluent. Let the actuarial pool effect take care of that (see my post called Thank Your for Smoking)
      \\
      For years I’ve advocated a dual system of health care that includes a service like they have in the UK. To use it, you have to prove you’re a citizen, agree not to sue (arbitration for medical errors), and staff it with recent medical graduates who can get a good salary and enjoy forgiveness of education debt over time for working for the service. Foreigners who show up at the emergency room will have their countries charged for service, either directly or by deducting from foreign aid or from trade receivables. A really good doctor can go private, just like a successful person can go private. They can charge whatever the market will bear. But that’s if I had it fix from the ground up.
      \\
      Bruce, I think you’ll see a common theme developing here. Welfare (?) for all, with plenty of upside for those that make a success of themselves. It would be so much more efficient than how we do it, which I see as the result of legislating the way we do with anyone willing to be more radical managing to pull the “middle” in their preferred direction. That rewards the partisans that push the boundaries away from the center, and virtually assures us of a mess that won’t work, that is far too expensive, and we get literally millions of us one paycheck or doctor visit away from poverty.
      \\
      If that’s the definition of a capitalistic and democratic republic’s solution I say it isn’t working, so we need to find solutions that combine the things that work from both the “socialist” and the “corporatist” ends of the spectrum, rather than putting the champions for each into a constant cage match to the death.
      \\
      What we don’t need is the archaic machinations invented by Senators last century to make themselves important (eg arbitrary “holds” on any all appointments to essential working parts of our executive branch)… I shudder to think what would happen with Angle or Rand Paul given those powers to stop government from ever succeeding. I mean, consider that Paul told dirt-poor coal miners in his state that the government shouldn’t make mine safety r
      hh

    • hhill51 says:

      I am SO Pissed… I did a major response, with two reference links, etc. and it just blinked out of existence — hmm it posted with just the last sentence or two missing….
      \\
      What Rand Paul told the miners was that companies that don’t run safe mines wouldn’t be able to get workers so there is no need for Congress to make safety regulations, in spite of hundreds of years and thousands of deaths that prove the contrary. I guess that’s what happens when you take a Utopian 1-dimensional novel as your handbook to set policy…. (that Utopian BS at work once again), but he owes his name to her, so what should I expect? After all, the guy used to introduce himself all the time as a board-certified opthamologist, even though the board that certified him consisted of himself and his wife. Another of my favorites was his desire to eliminate Medicare and Social Security, except for Medicare payments to doctors. He’s a nut, but an anti-government nut that can and will make things worse.
      hh

  2. davidson says:

    Very, very good post.
    Thank you.

  3. Conscience of a Conservative says:

    Howard,
    My view is that over the last several decades we keep adding entitlements and subsidies. We pay people to weatherize their homes, we pay people to buy homes, we pay farmers to grow tobacco, phone companies to add high speed data lines, pay people to buy cars, companies to build factories that aren’t economic without incentives. But all these subsidies raise taxes and gov’t debt. It’s like running with three guys grabbing on to your legs. It tends to slow one down.

  4. Jivko says:

    Great writing and discussion. Thank You!

    For some reason my mind drifted to Cioran’s writings.

    Check it out:


    In itself, every idea is neutral..but man animates ideas, projects his flames and flaws into them…Idolaters by instinct, we convert the object of our dreams …into Unconditional.

    Man’s power to adore is responsible for all his crimes: A man who loves a god unduly forces other men to love his god, eager to exterminate them if they refuse… Once man loses his faculty of indifference he becomes a potential murder…We kill only in the name of god or his counterfeits…

    In every mystic outburst, the moans of victims paralled the moans of ecstasy…Scaffolds, dungeons, jails flourish only in the shadow of faith – of that need to believe which has infested the mind forever. The devil pales beside the man who owns a truth, his truth…..
    A human being possessed by a belief and not eager to pass it on others is a phenomenon alien to the earth, where our mania for salvation makes life unbreathable. Look around you…everyone trying to remedy everyone’s life… The sidewalks and hospitals overflow with reformers. Society – an inferno of Saviors!

    It is enough for me to hear someone talk sincerely about ideals, about future… to hear him say “we” with a certain inflection of assurance – for me to consider him my enemy. I see in him a tyrant…
    We mistrust the swindler, the trickster, the conman; yet to them we can impute none of history’s great convulsions; believing in nothing, it is not they who rummage in your hearts…

    In every man sleeps a prophet, and when he wakes there is a little more evil in the world!

  5. Bruce B says:

    HH,

    All your points are valid. However, they don’t take in to consideration how the attainment of power is too intoxicating for human beings to keep in check. There will not be a happy medium in government because once the pols have tasted power, they need more and will do anything to keep and expand it. The bureaucracy will always grow. The only way to keep it from growing is to put major checks on what government can do. Relying on benevolence will fail. A government with major restraints on it will not be able to make the enlightened decisions you would like to see, unless they violate the Constitution (as they’ve done for the past century).

    Great idea about refunding Social Security principle and interest to those who don’t need it. I’ve never seen that idea before.

    Regarding your willingness to pay 10% above Medicare costs, it’s another nice idea, but Medicare is broke to the tune of trillions. Once again, the pols bought power with money that can never be paid back.

    Bruce

    • hhill51 says:

      I actually don’t have to reach back too far to find a meaningful counterexample to your most pessimistic assertion.
      \\
      In the 1993-4 Congress, with White House, Senate and Congress all under one party, the civilian employees of the federal government shrank by over 200,000. Admittedly only time it’s happened and doesn’t fit with the modern story line. But neither does the fact that Reagan increased that by larger percentage than any other President since the 60’s.
      \\
      The other thing I see is the fact than there is a higher correlation with winning elections and money spent than even being incumbent or challenger. That means it makes sense to limit money spent, and to require full disclosure of the ultimate source of every dime, if we ever want to have hope that people know who they are voting for, and who owns them.
      \\
      I did a piece last year, right after the Citizens United overreach by the corrupt five on SCOTUS, that analyzed the option pricing for campaign contributions. Just look at that West Virginia judicial election that ordinarily had a couple million dollars spent. Massey Coal was appealing a $100 million+ judgment to that very court, and spent $3 million supporting a judge who, once elected, vacated the jury award against Massey in the appeal. Not a bad payoff, all in less than a year. Sort of like the payoff Massey got by filing appeals of thousands of fines for breaking mine safety regs. Let them appeal if they think it’s wrong, but pay double, plus interest, if the finding is upheld.
      \\
      Cases like Massey will be common now, and hidden if SCOTUS and the tax-exempt 527’s that are gathering the corporate and union money get to keep their donor lists confidential. Which brings me to another question — why do we give tax-exempt status to the political fundraisers, anyway. The rest of us effectively subsidize them as they use our streets, courts, etc.

  6. Bruce B says:

    The Founders were also pessimists when it came to keeping human power lust in check. It’s why the Constitution is so limiting. They did fear the usurpations which have occured. They did not envision the lifetime professional politician at all levels of government.

  7. Cy Berlowitz says:

    Excellent, Howard! Wish I could add something, but you’ve covered it all.

    Cy

  8. Stephen Jencks says:

    Howard,

    Could write a piece and get a debate going on Congressional term limits.

    Stephen Jencks
    Seattle, WA

    • hhill51 says:

      Are you volunteering? I would love it.
      \\
      My issue with the idea is one of practicality. We already have a situation where the laws are being written by lobbyists and negotiated by staff members who come and go with their Congress-people. Guess who fools whom when one party makes a profession out of understanding a complex issue, and the other party is well-meaning, (or even just mean) amateurs that helped some yahoo get elected.
      \\
      To me, the term limit idea might help with entrenched corruption, but the issue of bad laws stems from them and their staff already outgunned by the multi-billion dollar lobbying “industry.” Think about the unintended consequences.

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