Monday, July 19, 2010

Another Economics?

Today's NYT carries a column by Nancy Folbre who is an economics professor at the University of Massachusetts Amherst.

She writes of a "U.S. Social Forum" held June 22-26 in Detroit, and attended by about 15,000 activists and adds of apparently one of the guiding thoughts behind the event:
Textbook economics treats individuals as selfish optimizers, unconcerned about the welfare of others.
She neglects to point out that economics also teaches that every person acting in his self-interest and who respects property rights is in fact benefiting the welfare of others, since exchange can only occur when both parties benefit.

She then adds:
Recent research suggests that many workers would like to play a larger role in the management of their companies and that “shared capitalism” works remarkably well.
Ah, no kidding. I have never met a worker who would not like to play a larger role in the management of their company. This is not shared capitalism, it is chaos.

Owners put up the money and workers get to decide how to spend it!! This will do nothing but suffocate capital investment.

She concludes:
One could say, therefore, that another economics is now under way. Still, it seems fragmentary and incomplete and not yet adequate to the task of institutional design. We still don’t know how best to organize cooperative efforts or how to mobilize the capital necessary to support them on a large scale.

Like the better world it could help deliver, another economics remains merely possible but profoundly necessary.
Folbre is, of course, ignorant of the basics of exchange that is at the core of  a true understanding of economics. Exchange ensures that all parties benefit from an interaction, and further, exchange when money is involved signals to businessmen what products should be produced in what quantities.

Folbre's belief that this exchange system can be replaced by meetings is nothing new. It is not "another economics".  It is simply the controlled economy where markets are interfered with and manipulated by "leaders", who may have views and want choices different from yours and mine (and certainly  have less knowledge of the individual circumstances of those they are determined to lead). Hayek called it a "fatal conceit".

In talking to people who hold Folbre's view, you realize they generally tend to have not thought through the details of what their proposals mean. Folbre gets this and writes of her view that: seems fragmentary and incomplete and not yet adequate to the task of institutional design.
For recognizing that her design is incomplete, she has to be given credit. If she ever gets that the reason it will always be incomplete is because she fails to recognize the mutual benefit that results from free exchange, which can not be duplicated by what Mises called the "Fuhrer principle", i.e., leaders giving directions and choosing tasks, she should be given a medal


  1. "We still don’t know how best to organize cooperative efforts or how to mobilize the capital necessary to support them on a large scale."

    Well, then how do large companies do this if we still don't know?

    "Textbook economics treats individuals as selfish optimizers, unconcerned about the welfare of others."

    From what I understand, Austrian economics holds value to be subjective. It's entirely possible for people to perform actions because they value helping others, not for their own benefit.

  2. Coming from the NYT it's feminism mixed with socialism. Should be called womanomics and it is the business pendant of oprah collectivism. This will surely lead to unbelivable reiches for everyone. Just like a women in power would end all wars. Right, Hill Dawg ?

  3. I used to work with a moron at my last job at a large multinational manufacturing company who was a recent hire from the University of Massachusetts at Amherst. He found out I was big into econ and told me he was an econ major himself and his favorite class was "Marxist economics." I rolled my eyes and asked what the hell that even meant, contradiction in terms. He began telling me, literally, that I was being exploited and so was he and everyone else working at the company.

    "Did you get captured in a net in the still of the night and wake up to find yourself chained to your desk?" I asked him.

    He explained that because I had a capitalist ideology I couldn't even see my own exploitation, only he and others with an objective, Marxian perspective, could. He advised me that the capitalists owning the company did nothing of any importance in the productive process.

    "Oh really?" I asked. "So you mean to tell me that without the capitalists to finance the construction of the factories, to finance the sourcing of materials and to use their brainpower and talents to organize all of these factors so they're all in one place for the laborer to come along and work on them, the laborer would, what, be born with all of these objects and resources in his hands, at which point he could produce in an unexploited manner?"

    He literally had no response. He just kind of stared blankly like he didn't understand what he just heard.

    Then we got to talking about money and exchange and value because I explained that exploitation is impossible with a system of voluntary exchange, that every voluntary exchange leaves each person better off. I used the example of a car dealer selling a Mustang for $30,000 and the customer "selling" the $30,000 for a Mustang. I pointed out that the only reason this exchange occurred was because each person valued the other one's item more highly than their own item.

    He got really frustrated with that and insisted that that was wrong and the items were of equal value, which is why a Mustang sells for $30,000. I kept asking, if they were equal, why they bothered to make an exchange at all and again his eyes glazed over.

    After talking to this guy I wondered, do these people who believe in Marxism and "another economics" just not have the intellectual capacity to understand these simple concepts or what? I might as well have been speaking French.

    Why is it that these people think their "another economics" ideas are so original, too? Is there something patently original about "another economics" and the way it differs from free market econ (economics) as opposed to any other non-free market form of mysticism-as-economic-science?

  4. Robert,

    She will get a medal...a Nobel Prize.

  5. Taylor, hilarious story, although sad from your co-worker's POV, as all that money spent on his degree was not only a waste of incredible resources, but he actually became dumber due to the fact that the information he thinks he knows is in reality completely false. He would have been better off never getting an econ degree at that school because then he at least wouldn't know anything about econ instead of knowing all the wrongs things about econ but believeing them to be true. It would sort of be like getting a degree in mathematics and learning a fundamental theorem or proof incorrectly, consequently leading your entire mathematical understanding to be totally flawed.
    E.g. A * 1 =! A

  6. Anon,

    I agree. The trouble is, it's very obvious with concrete things (say my "friend" went to automotive technical school and learned how to repair cars, only to graduate with a degree and realize he can't get a job as an auto mechanic because he can't actually fix the cars) whereas with intellectual things like economics, there always seems to be room for debate.

    Now, what's funny about concrete things is if two people have a difference of opinion about how to repair a car, it usually doesn't come to blows as far as settling the debate is concerned. But with economics and "economic policy" violence is the only option for settling the debate. One person's "policy" gets adopted by the government and forced upon all those who disagree whether they like it or not.