Posts Tagged 'economists'

Animal Spirits

Animal Spirits -reviewed

George A. Akerlof

Robert J. Shiller

Princeton University Press (2009)

I turned the last page of this book and, as is my habit with books just finished, put it on the arm of my rocking chair, and considered what I had just read. The consideration found me puzzled as do most books on or about economics. I am NOT an economist you understand (and so do I)  but a mathematician by training and education. My sense of what makes sense is, I realize, vastly different from that of economists. Mathematicians do what they do to understand the “why” of things and, it seems to me, economists do their magic to describe the obvious. What economists prove, in my opinion, is generally not profound except to each other perhaps nor is it immutable. What is true this year about the influence of quantitative easing will most assuredly not be true next year making it not much of a help but rather a palliative with an out-date for some given moment; a patch applied but never a cure. Moreover, you can be assured the next economic crisis will caused by the same factors that have caused previous crises. It is forever and always the same deja vu over and over again.

Economists like Akerlof and Schiller, both Nobel Prize laureates, write profoundly but with no real effect on economic behavior or even public policy for that matter. People continue to do the same stupid things over and over again. The economy plunges from one new height to the bottom of the next trough, up and down, calm and crisis. Is it because, like other economic pundits, something is missing from their equations? When I saw the title, Animal Spirits, I thought, “Ahaaa, these guys are going to nail it.” But, in the end, they didn’t. Every manifestation of animal spirit was mention and detailed except the one that causes and has caused most if not all economic crises.  I wholeheartedly agree with their assessment, “Failing to incorporate animal spirits into the model can blind us to the real sources of trouble.” The authors go on to enumerate the animal spirits as: confidence, fairness, corruption, money illusion, and stories. The “big one”, the biggest in fact, has gone missing in this taxonomy. In fact the “big one” is gone missing from nearly every discussion of economics I have read. However I have to give Alan (Mr. Irrational Exuberance) Greenspan credit for taking a swing at it. In a November 4, 2013, TIME magazine fluff piece he mentions, “… what we now call animal spirits”, promoting “fear” as being, “far more potent” than euphoria or greed. Close but no kewpie doll for Alan ever the apologist for the world as he knows it.

So how is it that economists can’t get to first base with this issue? One has to wonder what planet these folks occupy when they can make such a statement as: “Since wages are determined largely by considerations of fairness, …”. Apparently they haven’t heard about the McDonalds’ McPay scale and how their employees have to apply for public assistance to feed their families. That is not, in my estimation, “fairness”. In fact, it doesn’t even approach “fairness”. And McDonalds is not an isolated instance by any means or measure. It is as though Akerlof, Shiller, Greenspan and other notables have some conception of “workers” as being from another planet – extraterrestrials seldom encountered.

I would also point out that in spite of the authors’ assessment, Harvard is NOT the pinnacle of world universities. Sorry boys that just doesn’t work. Another point of amusing contention is their evaluation of Larry Summers “excellence” as an economic thinker for his observation that: “… when workers move from industries with high pay to industries with low pay, they tend to take a wage cut; when they go in the opposite direction they tend to get a raise.” No, I’m not making that up – it appears on page 103 and the kudos on page 188. Really!

The bottom line (this is, after all, about economics so bottom lines are appropriate fashion statements) is that the book provides clear explanations and definitions of the terms used by economists such as money illusion, lending at the discount window, and so forth. In that sense it is a good book and one I am glad to have read for the information it provides as much as for the insight it gives into the thinking of two world-class, Nobel laureate economists. What you will not get from Akerlof and Schiller is a discussion of the number one cause of irrational exuberance, property and stock “flipping”, political ambition, ad nauseum – the dominant animal spirit with credentials reaching to the dawn of civilization, greed.

Crossroads – The Consequences of Inequality

May 6, 2013

Ecologist Garrett Hardin’s 1968 essay, “Tragedy of the Commons,” inspired a stream of writing by all manner of scholars, particularly economists. The essence of Hardin’s thesis is actually a common-sense observation that limited resources can tragically be depleted or destroyed when thoughtless, unlimited use is made of them. When people disregard the consequences of their use and abuse of limited resources, those actions invariably affect others who need or use those same goods. In other words, when people behave selfishly it is essentially anti-social.

Selfish behavior is a moral issue, contrary to what two well-known University of Chicago economists, S.D. Levitt and S.J. Dunbar, claim. Their blunt appraisal is, “… economics simply doesn’t traffic in morality.” In their opinion, it seems, any resulting inequality from over-use of the commons has no moral dimension, an attitude which, in one form or another, seems to have become pervasive in our society and around the world. Peter Brabeck-Letmathe, chairman of the Board of Directors of Nestle, the largest food producing and water bottling company in the world, recently stated: “Human beings have no right to water.” If people want water they must buy it – preferably from him, of course. I suppose it is only fair to ask if air is next? We are living, it seems, in a time of unprecedented venality, an era of social behavior separated from moral consideration and consequence.

I believe the commons and the social contract are interchangeable. In a just society there is a relationship between the equitable distribution of wealth, justice and economic opportunity as essential goods of the commons. Truthfulness and belief are also vital parts of that equation. A healthy, functioning social contract cannot be a Potemkin Village of lies, injustice and public relations flack. The two most corrosive recent Supreme Court decisions, the 2000 coronation of George W. Bush and granting corporations human status in 2010, were poisonous to the commons, to the social contract. As a result of the latter we have a Congress controlled by business lobbyists and not by any measure a Congress of the people. A society in which the wealth of six people in one family is equal to the entire bottom 30% of Americans is not a healthy society. A “let-them-eat-cake” mindset didn’t work for Marie Antoinette; ultimately, it isn’t going to work for today’s 1% either. Something is going to have to give, either as a result of increased political consciousness or other less civil means. If the history of civilization is any guide, a tipping point will be reached sooner or later.

What demagogues of all stripes fail to remember is that there has always been a price to be paid when a critical mass of disbelief and inequality is reached. Lies have lasting effect and are inevitably found out, either by disclosure or by turn of events.

Supreme Court Justice Antonin Scalia recently stated that voting rights are “entitlements.” Either he is ignorant of the Constitution, he doesn’t grasp the Constitution, or he is a baldfaced liar. There are no further possibilities, and lying seems the most likely, based on his presumption of stupidity on the part of the rest of us, or, in other words, his obvious arrogance.

“The most irreducibly bad thing about lies is that they contrive to interfere with, and impair, our natural effort to apprehend the real state of affairs.” is how Harry G. Frankfurt puts it in his charming and insightful book, On Truth. Lies from the Supreme Court bench indisputably distort the “real state of affairs.”

What is the “real” state of affairs in this case? Here is the definitive statement of voting rights, which Scalia and John Roberts want us to believe they don’t get:


[Ratified February 3, 1870]

Section 1. The right of citizens of the United States to vote shall not be denied or abridged by the United States or by any State on account of race, color, or previous condition of servitude.

Section 2. The Congress shall have power to enforce this article by appropriate legislation. 

The Massachusetts Secretary of State, William Galvin, in response to Roberts’ assertion during the trial that Massachusetts had the worst white-to-black voter ratio turnout in the U.S., gets to the heart of this discussion:  “I’m disturbed, first of all, that he is distorting information. You would expect better conduct from the Chief Justice of the United States. I’m a lawyer, he’s a lawyer, lawyers are not supposed to provide disinformation in the course of a case. It’s supposed to be based on truth.”

Of course, you would have to be new to the planet if you thought lawyers have a universal commitment to the truth. You might notice in a court proceeding that everyone must take an oath to tell the truth, the whole truth, and nothing but the truth. Everyone, that is, except the lawyers. I once questioned an officer of the Lawyers Disciplinary Board, a group that is charged with overseeing the conduct of lawyers, about this anomaly. I was told that lawyers may “interpret” in their speech to a jury. This assertion flies in the face of what is called the “Duty of Candor Before the Tribunal,” to which all lawyers are required to adhere. Nowhere in the literature of the American Bar Association will you find an exception to this duty. In practice, however, lying is sanctioned in a Kafka-worthy “interpretation” by regulators. If truth is not the absolute coin of the realm in court, where could it ever be? How could there be justice?

I agree with the social philosopher, Philippa Foot, who said, “… it makes sense to speak of those who are lovers of justice – as of those who are lovers of truth.” We must then conclude that the lawyering business has a questionable relationship with both truth and justice if their standard for truth is a moveable feast, fabrication in the guise of “interpretation” to suit their needs. As Mr. Galvin cast it, “… lawyers are not supposed to provide disinformation in the course of a case. It’s supposed to be based on truth.” I once conducted a simple survey of lawyers, asking the question: “Is your duty before the court to seek justice or to win?” I never did get a straight answer. If the motto is, “Winning is everything,” the corollary must inevitably be, “Society and Justice be damned.” It follows from this that not all people are equal before the law, but rather it depends upon who has the lawyer most willing to “interpret” the “facts” in a manner favorable to the client.

A society cannot long exist without truth, which is the bedrock of justice; it cannot long live a lie. In the final analysis, the Social Contract is both a perception and a belief. When the substance of life in a society as it is lived is perceived to fail, our natural expectations of truth and justice, our belief in the social contract is betrayed and cynicism follows. With that, the commitment to the commons is destroyed. When there is no social contract, it becomes everyone for themselves, with all which that entails.

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