Saturday, May 19, 2007

What's wrong with economic logic

I have a complaint with the discipline of economics and with the Libertarian doctrine which believes that all of society can be reduced to what selfish individuals do to improve their lives. But first, let me share a joke with you.
A common parable about leadership goes as follows:

Halfway through the construction of the cathedral, the architect died. The bishop, not knowing what to do, went out to walk through the stoneyard, and found a man hammering on a chisel. "Bless you, my son. What are you making?"

"About twelve centimes a day, your excellency."

The bishop moved on, and found another mason doing the same thing. "Bless you, my son, what are you making?"

"Your excellency, I'm making the third voussoir for the second arch on the right up there," pointing up toward the vaulting.

"Bless you, my son, " said the bishop, feeling a little better, and walked on to another mason hammering on his chisel. "And what are you making?"

"As any fool can see, your excellency, meaning no disrespect, a cathedral."

"Bless you, my son. Put down your chisel and come with me, I have a job for you."
[This comes from The Reality-Based Community.]

The trouble with economics is that it is the study of things that can be measured quantitatively in money. It then for the most part ignores things that cannot be measured in money. Value can be placed on goods and services when a transaction, measured in money, can occur between a buyer and a seller who are independent of each other.

So what is the value of family? In fact, what is the value of any person who has no money? And how do you measure power? In fact, how do you even precisely define power so that it can be measured and quantified? [Hint: we all recognize power when we see it - but it cannot be defined or measured precisely.]

Within its limits, economics is a powerful tool for explaining what is happening in business and society. Unfortunately, too few discussions of society and business address the limitations of what can be demonstrated and proven with economic tools.
Of the three individuals asked what they were doing in the joke above, economics is stuck at the level of the first one.

Why does this matter? Because business managers operate in the world of economics, where costs and results can be quantified. Many of them cannot make the shift to government in which the main thing that matters in getting things done is power.

This seems to me to also be what is wrong with so many of the very wealthy conservatives who are financing the think tanks that provide ideas and parking places for activists until they can get government jobs. Those wealthy conservatives see society through the prism of their wealth, and work to manipulate government in order to protect that wealth and even to augment it. But in the end, they measure success by whether they have more dollars at the end of a time period than they had at the beginning. Yet very frequently their children (like Paris Hilton) have severe emotional problems.

I am not going to say that Economic logic is wrong. The problem is that like all human disciplines, it is limited. When it is misapplied to things that are not properly described in economic terms the application of economic logic is worse than useless. It inhibits the application of common sense.

That's what I think is wrong with economic logic. It too often directs strategic thinking towards nothing but quantitative dollar values and ignores the fact that the purpose of the work is to build a cathedral.

1 comment:

Lucky Buck said...

Richard,
Kind of...but not all economics are created equal. I stumbled onto Reich's blog after reading a few of his books. This after going on a John Kenneth Galbraith binge. Reich is a Galbraith wannabe. A very good one, but a wannabe nonetheless.
Of course economics can't explain everything as you rightly point out, but it is my favorite tool (bullshit) of social commentary in the hands of a genius like Galbraith.