Abandon all economic theories

Economic theories often claim to be about the way things are, as if they were objective scientific theories about the real world of human group behaviors —  as if they were about how we actually produce and distribute goods and services. But some of these theories have another element to them. And that element is: how things should be.

How can we distinguish whether a theory is a description of how things actually are, how our systems actually work as objectively observed and scientifically verified, and when a theory is attempting to say how things should work? When is a theory attempting to describe what people actually do versus what they should do?

It seems that most economic and political theories (and it is impossible to separate the two) have a lot of “should”s in them. Few if any have no “should”s.

Governments exist. Many of the “should”s have to do with the role of governments in our systems. How much should governments be involved in economics? Some people (some capitalists) say governments should have no role or a minimal role; some people (some communists) say governments should make all or most economic decisions. Clearly both extremes do not describe how any actual systems actually work. Governments always have some role. They make and enforce laws which constrain human behavior. Stop on red, go on green, be careful on yellow. And enforce contracts. And no government can make all economic decisions. Governments don’t know enough and they can’t possibly manage everything. They don’t have enough information and even if they did, they wouldn’t know how to put it all together and use it. So many of the “should”s are about the roles of governments.

Every law is a “should”. If a law were not a “should” then it would be a description of actual behavior and it would not need to be enforced.

Many “should”s are about individual behavior. Traffic laws, for example are about individual behavior. Most individual behavior occurs with or in groups of other people — in families, clans, tribes, towns, cities, clubs, associations, partnerships, corporations, states, nations. Many of the “should”s are about these groups, these human organizations.

“Should”s are not only laws. Customs and habits that most people (in some group) follow most of the time are also “should”s. Human life is full of “should”s.

Some “should”s take the form of: You should behave according to theory X because if everyone behaved as specified in theory X, then good thing Y will happen. Classic capitalists said that if everyone would pursue his own rational self-interest, then the resulting system would be the best for everyone. If everyone is greedy, then the resulting system will be best for everyone. Classic communists said that if you let the central government make plans for all the types and amounts of goods and services to be produced in some period of time, and if everyone follows the plan, then this will result in a good and efficient system that will be best for everyone. If everyone just works and obeys orders, everyone will be taken care of, it will be the best for everyone. Note that in both cases “best” is not clearly spelled out and there was no proof, no valid argument, that the “best” could be actually attained. Note also that in both systems many people were and are left out — their situations became worse.

There are many reasons why any preplanned social system for the production and distribution of goods and services will not work as expected. The main reason is we cannot predict the future at least in detail. And human behavior changes. Technology changes. Cultures change. Nature intervenes. Accidents and disasters happen.   

So we cannot dream up an ideal system with specified roles and rules for governments, corporations, organizations in general, and individuals, and claim that if every organization and individual behaves as specified (everybody and every organization always follows the specified rules), then the result will be the best for everyone. We can’t even claim it will be good for everyone, or for sure better than some other system. There is no such thing as perfection in such matters.

We cannot get 100% compliance with any set of rules and laws. At present huge numbers of laws are ignored by individuals and corporations and are not enforced by governments. So any such predesigned system would have to be built with the assumption of less than 100% compliance. And since nothing stays the same, since culture, technology, nature, and human nature are always changing, always evolving, any preplanned and highly specified system will not continue indefinitely to produce the same results it once may have produced.

So any system we might contemplate implementing must not be too highly constrained. It must have mechanisms to allow it to co-evolve with evolving nature, human technology, human nature, and culture in general.

In a sense we already have some of this co-evolution. Not so much in our theories (which are often presented as static, highly specified, and unchangeable), but in our practice. We are constantly changing our laws regarding our economic and political systems. The goals, purposes of the new laws are often to benefit or favor certain individuals and groups but not everyone. Sometimes the purpose of a new law is to make our practice (our operational system) conform better to one of our simple theories such as capitalism, communism, socialism, libertarianism, “the Austrian school”, Keynes, or the theories of any particular economist. But often, behind such a purpose is the more basic goal to benefit some individual or group.

We need something else beyond these simple, highly specified, over-constrained systems as the goals for our system changes, as our law changes. We don’t need any more theories like those listed. They are all simple-minded, limited, and do not (or would not) work very well for most people. Each may work well for a subset, some class or classes of people, the rich or the powerful, but often make things worse for most people.

We need a simple, clear, direct goal for our system changes, our law changes: We should design our system changes, our law changes to our economic and political systems, so that to the best of our abilities, the resulting system is better for everyone. We must eliminate the middle men — the simple-minded theories (which are mostly fake covers for benefiting the few at the expense of everyone else) — and we must aim clearly and directly at the goal of changes that benefit everybody.

Clearly since we will have no theory to guide us (and even if we did, it wouldn’t help), and we cannot predict the future in detail, we will have to use trial and error, which is the scientific method. That means we make our best estimate, our best guess, as to what to change. Then change it and look at the result. Check whether it made things better for almost everybody. (We must not get hung up on seeking perfection in every single step. Perfection is an illusion.) If the change made things better for a large enough number of people (and not just a few individuals or classes) then keep that changed law. If the change only benefited a few individuals or classes, then reverse that change and try something else. Trial and error. There really is no other way.

When I say abandon all the above theories I mean abandon them as exclusive overriding dogmatic systems. There surely is important knowledge about how human organizations work and can work, both internally and in cooperation with other organizations (for example maybe money, markets, property, contracts, laws, incentives, technologies, education, safety, redundancies, etc.) and this knowledge should be the basis for our best estimates and best guesses when changing our systems to make them better for everyone. In any case we must start with whatever we have now. No system as complex and interconnected as the present world system can be “overthrown” and a new one built from nothing.

Finally I want to spell out in more detail what the goals of our world economic and political systems should be: The goal should be to change our systems step by step as above into systems that provide almost all human beings with the human necessities which are: sufficient water, food, clothes, shelter, education, health care, opportunity to work with others to contribute to the welfare of everyone, maximal liberty consistent with the welfare of others, nonviolence — and all this consistent with the earth’s limited resources and consistent with preserving the natural world from further degradation and destruction.

We cannot know now if it is possible to reach such a goal. Nor can we know now that it is impossible to reach such a goal. To find the answer, we must try. We can measure how close we are to each of these sub-goals. This is something economists can do since they can stop wasting their time generating grand theories. Surely great progress can be made. Reaching the goal is not the main thing. The main thing is to keep moving our economic and political systems toward these goals. Let’s have a directed evolution. That will be a real revolution.

 

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