Earth to Talking Heads: Cutting through the punditry on economics
(formerly: Pundit's Guide to Economics)
SECTION I: THE PLIGHT OF THE PUNDIT
1. The economy as a metaphor
2. Don’t take these guys seriously
3. The political economy of punditry
Not risking one’s position.
Economic discussion usually begins with a bad analogy, proceeds across inappropriate assumptions and comes to a conclusion pre-set by the discussants’ professional or political interests.
Nothing will help the pundit’s confidence in difficult situations as much as realizing the weaknesses of one’s opponents.
This section secures the pundit’s intuition with an appropriate and useful metaphor, examines the performance and understanding of the orthodox economics and describes the milieu which promotes arcane interpretations over direct examination. It continues with a look at the pundit’s personal position, in the context of his “political economy.” It highlights what subjects can safely and productively be explored, how discussions are framed and what dimensions are methodically left out.
Chapter 1: The Economy as a Metaphor
When dealing with a broad audience, logic and evidence don’t count, the metaphor counts.
Human beings understand complex issues by employing metaphors. Metaphors simplify and make familiar issues which are in themselves complex and arcane. A metaphor describes one situation as similar to another, the second more well-understood. It is a type of analogy and transfers meaning from one context to another. A metaphor is not logic. Trafficking in the wrong metaphor is a most insidious and dangerous practice. It is pervasive among the pundit class.
The most ubiquitous metaphor is:
Without overt human guidance the magic of markets produces the optimal mix of product and breadth of distribution. Food, clothing, shelter, schools, roads, national defense are provided by the simple self-interest of the many operating through a market-based system. No one entity, corporation or individual, can gain control, because the natural competition – the essence of market discipline – will quickly and efficiently restore the lowest price and the best quality.
As if by an invisible hand, individuals’ choices will be transmitted to producers and each will create that portion which is most conducive to the common good. Healthy, active, productive membership in the society of personal advantage is the individual’s predominant responsibility. The infirm, unlucky and ill-advantaged will be born up in an invisible way by the maximum prosperity. Good government is no government.
The market consigns every product and service to its appropriate number of buyers and sellers, distributing incomes and extracting prices in mechanical precision.
Such is the metaphor of the market. So omnipresent in discussion that it is not recognized as a metaphor, but as an actual thing. A trade of tomatoes in the town square is extrapolated to describe all economic activity. Such a market does not exist except in tangential and idiosyncratic forms. Yet so popular is the metaphor that it can be raised as a banner for any private initiative. Where the market does not exist, it should be imposed! We think of the market for health care, for example, and try to imagine sick people shopping for hospitals or changing doctors depending on costs. Or utilities. There is no market for the broad category of public goods: roads, national defense, public safety, public education, fire protection and so on. Most of the corporate economy resembles a competitive market the way an elephant resembles a mouse. Four legs, two eyes, but one often controls its customer, the regulators and the terms of the exchange, while the other is an exchange among equals.
Treating an economy as a market is like treating the travel from one place to another as a function only of a car – no roads, no weather, no time, no destination. Or if the metaphor for the entire economy is a car, the competitive market comprises at best a couple of cylinders and a wheel. When the market metaphor is used in practice, we are left with no steering, no brakes, driving by braille. At best, the market is the summer and early autumn of the growing cycle, the harvest and sale. The point of sale is the market’s only signal to its efficiency. If on market day the producer finds no buyers, he has failed entirely in his enterprise. If on market day the buyer is confused about the product, believing it to be more or different than it is, efficiency has been lost. If on market day, the cost of the product are not included in the price – all the costs – buyer and seller will be well served, but the market will have become a liability to somebody who has not participated.
The “Invisible Hand” is the emblem of the market. Adam Smith used it twice in Wealth of Nations, but it has grown to convince a multitude that the common good rises out of the sum of individuals striving for personal good, and it has the force and benevolence of heavenly guidance.
He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. … He intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention … by pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.
Another person might choose “Law of the Jungle” as a metaphor for the same phenomenon of self-interest, with the implication it leads to a somewhat different outcome for society. But whether it is the Invisible Hand or the Law of the Jungle, the point of metaphor is that they both bypass observation and logic. The free market that is the framework or premise of both does not exist. A great body of evidence and observation confirms that markets are either circumscribed – perhaps not as well as some would like – by government or dominated by large corporations, and very often both. Ironically those most eager supporters of the Invisible Hand are those corporations which most aggressively attempt to control their markets through monopoly, lobbying and advertising.
Not that the Invisible Hand is a useless thought. Where open competition is present and good information available, and where rules are set to prevent gaming the system, it would be applicable. Indeed, all the metaphors we consider for the economy have value and validity to one degree or another. The pundit will need to choose the best, which may as often be the favorite of his constituency, not the most apt.
Some of the candidates: The Cave Man, the Natural Force, the Machine, the Small Farm.
We’ll look into those next time.