Monday, March 21, 2016

Traditional Economics Failed. Here’s a New Blueprint.

Politics in democracy can be understood many ways, but on one level it is the expression of where people believe their self-interest lies— that is to say, “what is good for me?” Even when voters vote according to primal affinities or fears rather than economic advantage (as Thomas Frank, in What’s the Matter With Kansas?, lamented of poor whites who vote Republican), it is because they’ve come to define self-interest more in terms of those primal identities than in terms of dollars and cents.

This is not proof of the stupidity of such voters. It is proof of the malleability and multidimensionality of self-interest. While the degree to which human beings pursue that which they think is good for them has not and will probably never change, what they believe is good for them can change and from time to time has, radically.

We assert a simple proposition: that fundamental shifts in popular understanding of how the world works necessarily produce fundamental shifts in our conception of self-interest, which in turn necessarily producefundamental shifts in how we think to order our societies.

Consider for a moment this simple example:

For the overwhelming majority of human history, people looked up into the sky and saw the sun, moon, stars, and planets revolve around the earth. This bedrock assumption based on everyday observation framed our self-conception as a species and our interpretation of everything around us.

Alas, it was completely wrong.

Advances in both observation technology and scientific understanding allowed people to first see, and much later accept, that in fact the earth was not the center of the universe, but rather, a speck in an ever-enlarging and increasingly humbling and complex cosmos. We are not the center of the universe.

It’s worth reflecting for a moment on the fact that the evidence for this scientific truth was there the whole time. But people didn’t perceive it until concepts like gravity allowed us to imagine the possibility of orbits. New understanding turns simple observation into meaningful perception. Without it, what one observes can be radically misinterpreted. New understanding can completely change the way we see a situation and how we see our self-interest with respect to it. Concepts determine, and often distort, percepts.

Today, most of the public is unaware that we are in the midst of a moment of new understanding. In recent decades, a revolution has taken place in our scientific and mathematical understanding of the systemic nature of the world we inhabit.

–We used to understand the world as stable and predictable, and now we see that it is unstable and inherently impossible to predict.

–We used to assume that what you do in one place has little or no effect on what happens in another place, but now we understand that small differences in initial choices can cascade into huge variations in ultimate consequences.

–We used to assume that people are primarily rational, and now we see that they are primarily emotional.

Now, consider: how might these new shifts in understanding affect our sense of who we are and what is good for us?

A Second Enlightenment and the Radical Redefinition of Self-Interest

In traditional economic theory, as in politics, we Americans are taught to believe that selfishness is next to godliness. We are taught that the market is at its most efficient when individuals act rationally to maximize their own self-interest without regard to the effects on anyone else. We are taught that democracy is at its most functional when individuals and factions pursue their own self-interest aggressively. In both instances, we are taught that an invisible hand converts this relentless clash and competition of self-seekers into a greater good.

These teachings are half right: most people indeed are looking out for themselves. We have no illusions about that. But the teachings are half wrong in that they enshrine a particular, and particularly narrow, notion of what it means to look out for oneself.

Conventional wisdom conflates self-interest and selfishness. It makes sense to be self-interested in the long run. It does not make sense to be reflexively selfish in every transaction. And that, unfortunately, is what market fundamentalism and libertarian politics promote: a brand of selfishness that is profoundly against our actual interest.

Let’s back up a step.

When Thomas Jefferson wrote in the Declaration of Independence that certain truths were held to be “self-evident,” he was not recording a timeless fact; he was asserting one into being. Today we read his words through the filter of modernity. We assume that those truths had always been self-evident. But they weren’t. They most certainly were not a generation before Jefferson wrote. In the quarter century between 1750 and 1775, in a confluence of dramatic changes in science, politics, religion, and economics, a group of enlightened British colonists in America grew gradually more open to the idea that all men are created equal and are endowed by their Creator with certain unalienable rights.

It took Jefferson’s assertion, and the Revolution that followed, to make those truths self-evident.

We point this out as a simple reminder. Every so often in history, new truths about human nature and the nature of human societies crystallize. Such paradigmatic shifts build gradually but cascade suddenly.

This has certainly been the case with prevailing ideas about what constitutes self-interest. Self-interest, it turns out, is not a fixed entity that can be objectively defined and held constant. It is a malleable, culturally embodied notion.

Think about it. Before the Enlightenment, the average serf believed that his destiny was foreordained. He fatalistically understood the scope of life’s possibility to be circumscribed by his status at birth. His concept of self-interest extended only as far as that of his nobleman. His station was fixed, and reinforced by tradition and social ritual. His hopes for betterment were pinned on the afterlife. Post-Enlightenment, that all changed. The average European now believed he was master of his own destiny. Instead of worrying about his odds of a good afterlife, he worried about improving his lot here and now. He was motivated to advance beyond what had seemed fated. He was inclined to be skeptical about received notions of what was possible in life.

The multiple revolutions of the Enlightenment— scientific, philosophical, spiritual, material, political— substituted reason for doctrine, agency for fatalism, independence for obedience, scientific method for superstition, human ambition for divine predestination. Driving this change was a new physics and mathematics that made the world seem rational and linear and subject to human mastery.

The science of that age had enormous explanatory and predictive power, and it yielded an entirely new way of conceptualizing self-interest. Now the individual, relying on his own wits, was to be celebrated for looking out for himself— and was expected to do so. As physics developed into a story of zero-sum collisions, as man mastered steam and made machines, as Darwin’s theories of natural selection and evolution took hold, the binding and life-defining power of old traditions and institutions waned. A new belief seeped osmotically across disciplines and domains: Every man can make himself anew. And before long, this mutated into another ethic: Every man for himself.

Compared to the backward-looking, authority-worshipping, passive notion of self-interest that had previously prevailed, this, to be sure, was astounding progress. It was liberation. Nowhere more than in America— a land of wide-open spaces, small populations, and easily erased histories— did this atomized ideal of self-interest take hold. As Steven Watts describes in his groundbreaking history The Republic Reborn, “the cult of the self-made man” emerged in the first three decades after Independence. The civic ethos of the founding evaporated amidst the giddy free-agent opportunity to stake a claim and enrich oneself. Two centuries later, our greed-celebrating, ambition-soaked culture still echoes this original song of self-interest and individualism.

Over time, the rational self-seeking of the American has been elevated into an ideology now as strong and totalizing as the divine right of kings once was in medieval Europe. Homo economicus, the rationalist self-seeker of orthodox economics, along with his cousin Homo politicus, gradually came to define what is considered normal in the market and politics. We’ve convinced ourselves that a million individual acts of selfishness magically add up to a common good. And we’ve paid a great price for such arrogance. We have today a dominant legal and economic doctrine that treats people as disconnected automatons and treats the mess we leave behind as someone else’s problem. We also have, in the Great Recession, painful evidence of the limits of this doctrine’s usefulness.

But now a new story is unfolding.

by Eric Liu and Nick Hanauer, Evonomics | Read more:
Image: Sasquatch Books