The Evils of Economic Man

By George P. Brockway, originally published July 9, 1990

1990-7-9 The Evils of Economic Man Title

NINETEEN NINETY bids fair to go in the books as the year of ironies. Everywhere economists are being asked the way out of the present Slough of Despond – and everywhere economists are sure only of the way in.

The Soviet Union and its former satellites are in trouble. Both industry and agriculture are failing. Crime and corruption are rampant. Store shelves are empty. Prices are soaring. Unemployment is rising. The solution (so everyone says) is to become like us.

But we are in trouble, too. Six million Americans are unemployed, another million are too discouraged to seek work, and 23 million are working only part time. We’re just beginning to find out how many of us are homeless. More than 31 million have no health protection. There are 15 nations whose citizens have a longer life expectancy than we do in this country.

Among the industrialized nations of the world, the U.S. ranks low in literacy and lower in comprehension of mathematics and science. We have finally acknowledged that the Head Start program enormously improves the effectiveness of our schools, but we provide it for merely a small number of our children.

Our banking system is in disarray. The part of it that was created to encourage home ownership and personal saving has been destroyed by doctrinaire “deregulation,” and it is now estimated that it will cost over $500 billion to clean up the mess and payoff the depositors. Commercial banks are choking on nonperforming real estate and foreign loans. Investment banks are being bankrupted by their own greed.

Our atomic plants are in disrepair; some must be closed down as dangerous. Repairing them will cost upwards of $200 billion. Our highway system, most of it more than 30 years old, is also crumbling and will cost hundreds of billions to restore. Meanwhile, we seem to be unable to find a few billion to try to pay for the damage that we caused directly in Panama and indirectly in Nicaragua.

Our troubles (so everyone says) are caused by our deficits, which (so everyone says) are caused by our lack of saving. The solution (so everyone says) is to become like Japan.

But Japan is in trouble, too. Perhaps a trillion dollars has been lost in its stock market so far this year. Despite the best efforts of the Bank of Japan, the yen is erratic against the dollar. The inflation rate is only a fraction of ours, but it is rising. Speculation in real estate has made home ownership impossible for all except the very rich.

The Japanese standard of living has never equaled ours and is only coming closer as ours falters. The secure and happy life of the Japanese worker has always been a fable propagated by the American business press. (See How Our Sun May Rise Again,” NL, July 12-26, 1982.) The position of Japanese women is at a level we reached a century ago. Japanese invest in American real estate, like Radio City, because it is so much more profitable than Tokyo real estate; and in general Japanese investors are finding fewer and fewer opportunities at home. The solution (so everyone says) is to cut down on regulation and become more like us.

Then there are the two Germanys, whose situation is nicely described in Cynthia Propper Seton‘s A Fine Romance ( one of my favorite novels, which I’m rereading for the fifth time}:”Proust discovered that all our desires are fulfilled on condition that they do not bring the happiness we expected from them.” The West Germans will get all that eastern land (except for Sudetenland and the Prussian part of Poland) on condition they clean it up and modernize it and re-educate its citizens. The East Germans will again become important people in the world on condition they realize they’re less equal than their Western cousins.

Now that the Cold War is melting away, it is possible to see that these ironies have a similar, if not a common, source. We can for convenience call it the idea of Economic Man, who is selfishness incarnate and perhaps the one creature, real or imaginary, who can safely be referred to as “he.” No self respecting woman would want to be mistaken for him, but it is on the basis of his absolutely greedy behavior that economists deduce the laws they solemnly tell us about.

He is an essential organizing idea of contemporary economics, just as mass and energy are organizing ideas of physics. Adam Smith thought Economic Man’s selfishness would be automatically curbed by competing selfishness, while Karl Marx thought it would be inexorably curbed by dialectical materialism (not his phrase), which is another way of saying class selfishness.

Contemporary economics holds that any curbing of Economic Man is inefficient. Even Keynes, after painting an unappealing portrait of him, wrote, “For at least another hundred years we must pretend to ourselves and to everyone that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into the daylight.”

Sixty of Keynes’ hundred years have gone by, but he imposed two conditions we have not met: no important wars (we have fought three: World War II, Korea, and Vietnam) and no important increase in population (ours has doubled, and the world’s has multiplied two and a half times). So Keynes would be justified in putting the end of the tunnel at least another hundred years down the road.

Although it will be none of my business, I expect it will be a lot farther away than that. If “avarice and usury and precaution” are to be desanctified, we must create gods to put before them. Economic Man will not be easy to displace.

Until we learn how to displace him, we face a long, slow, erratic decline. By “we” I mean not only the countries mentioned above but also the rest of the world – all of us.

REGARDLESS of what a society considers good, there is, at least in theory, some point above which an individual’s income can provide more of that good than a person has civilized use for. Conversely, there is some point below which an individual’s income provides little or none of the good.

Economic polarization has malign consequences across the distribution scale. The poor are unable to buy the products that industry could produce; industry consequently has fewer opportunities for further expansion; the rich consequently have fewer opportunities for investment; workers consequently have fewer job opportunities. If the rich are frustrated in their attempts to consume their incomes, they turn to speculation. The amount of money that flows into speculative markets – preeminently the securities markets – is increased; so prices in these markets escalate.

Escalating security prices force corporations of the producing economy to increase their “normal” or planned profit in order to attract the capital necessary simply to continue in business. Planned profit is in conflict with wages; so wages must be further restrained or employment reduced or “rationalized,” thus increasing polarization and narrowing the market for industry’s products – a phenomenon Professor Robert Averitt calls “The Paradox of Cost Reduction.” Such a situation cannot correct itself. On the contrary, the amplitude of the difference between the rich and the poor tends to increase, and the numbers of the rich and the poor tend to increase, too.

Until we make fundamental reforms, especially in income distribution, we can expect a series of crises and minicrises. The next one may come about as a result of Third World debt, or consumer debt, or trouble in the insurance business, or another market crash, or junk bonds, or (ironically) the end of the arms race, or something quite unforeseen. Whatever, with each crisis unemployment and inflation will inch upward.  Not that long ago it was widely believed that if either unemployment or inflation stayed long above 5 per cent, there would be condign punishment of the politicians in power. Now 5 per cent for either rate is a cause for unabashed self congratulation.

The slow deterioration of a society can go on for a very longtime. The Pharaonic World, the Roman World, the Medieval World, the Mandarin World, all stagnated for centuries. The modem world (it will be our successors who name it) can do the same. And it will do the same as long as we continue to worship Economic Man.

 The New Leader

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