One thing is certain: I love economics [Obviously!] and the saying “monkey kno fine but im mama like am” (which implies that a mother will love her child regardless of how ugly the child is) can pretty much describe my feelings towards ‘economics’ most days.
The issue is I can never seem to understand why a discipline that prides itself on solving problems can try to do so under the most ridiculous and dare I say, stupid assumptions. Probably one of the most laughable ones will be the assumption of rationality that mostly steers the thinking of [you won’t believe it but] a whole school of economics and economists.
The idea that people are rational and as such will arrive at decisions that will lead to the benefit of society as a whole is at best a fallacy or just plain dodgy logic.
You see: I admire Milton Friedman, so much so that if you saw me walking along the road with my headphones on, there’s a 75% chance I am probably listening to one of his speeches or listening to debates by personalities like Ron Paul and their argument is one that always resonates. But then, the idea that people act rationally and as such market forces should be left to operate freely with minimal government intervention is a little inane. Pardon my passionate use of words, but I am hard pressed for better qualifiers.
I think economists often forget that this discipline is supposed to solve problems and not create new ones. The discipline has in recent time become more synonymous with mathematics and statistics than it has ever been with a very observable race by many authors to put forth complicated and extremely confusing models that will make even the greatest mathematicians cringe. unfortunately, these models have not done much to solve the many prevailing ails in the global economy.
This is why I often find myself veering towards more Heterodox economic thought because – and this is just my opinion – it actually serves to pool together the ideas from different facets and schools of economic thought to arrive at conclusions that are less abstract and that can better serve ‘real-life’ economic situations – that exist outside textbooks. This, I believe is the ideal case of all economists rubbing minds rather clinging staunchly to a particular line of reasoning that propagates theories that absolutely defy common sense.
Take for example the case of unemployment benefits; This is a very good thing and definitely a good practice for every government but when a government provides Job seekers allowance, child benefit, housing benefit, Maternity grants, Heating benefits, carers allowance, disability benefits, low income allowance, tax benefits; all of which rise at a faster rate than wages, you absolutely have to wonder what on God’s good earth is the sense in all these. Especially when those working a.k.a ‘Tax Payers’ are responsible for financing all these ventures through HEAVY tax deductions. By the way, these heavy deductions are typically on the middle and low-income earners because, you know, the already wealthy really need tax cuts to make them really happy and of course, these tax cuts on the wealthy will trickle down to poorer households and lead to stronger economic growth. Good ole Trickle-down economics: The cruelty of it all.
On the flip-side is the case of governments like India or Nigeria (particularly in the developing world) who basically couldn’t care less about providing any such benefits or even spreading their tax base. This issue deserves its own blog post.
What worries me most is the reasoning behind these policies: that such benefits and provisions will increase the level of employment. Apparently, these Keynesians/consumptionists say that such benefits received by these individuals will be spent a.k.a. consumed. This will then result in a multiplier effect such that increases in spending further increases consumption and also production will in turn cause businesses to hire more labour to engage in production to meet the increased demand.
This is not bad thinking, it simply just puts aside the fact that tax payers who are working for much and receiving little for it would be tempted to simply stay home and be in receipt of Government benefits rather than slaving away. Even worse is that there are behavioural effects too; imagine if the younger generation comes to see working as an unnecessary strain especially given the alternative of collecting a fortnightly stipend that they can adequately survive on with the already provided housing benefit from the government. By the way, Keynesians are not the ones who think everyone is rational and that pursuance of self-interest benefits society, so they should take into the account simple human nature when proposing such policies, right?
I personally have heard of people who went on to get pregnant and have kids just so they could receive said benefits. So Rationality is flawed and the Multiplier effect is
more effective than we thought flawed.This sums up to Classicalists and Keynesians not making much sense by themselves.
What I am saying in summary is that all Economic theories need to be explained from a place that combines various schools of thoughts in a manner that resonates with REALITY. I do not have any beef with Keynesians, Classicallists, Real Business Cycle theorists, Behaviourists, Kaleckians and all the likes.
I simply just believe that Economics as a discipline will be less crappy if we all just got along.