(Originally posted by Pat on 1/4/10)
Economics is in a bad way. No one predicted the current worldwide
recession, and continual attempts to liberalize economies on the grounds
that this will increase wealth and reduce inequality has served only to
concentrate wealth and increase inequality. Our models aren't working,
and we need to fix them.
In service of this goal I propose 7 new
maxims that all economic models must take into account; they appear at
first contrarian and counter-intuitive, but in fact they are clearly
true; they only appear strange because we are used to presuming their
opposites, typically for no good reason.
1. All cost is opportunity cost.
is no such thing as the "value of a loaf of bread" in the absence of
human beings who need bread to live. The value of a loaf of bread
consists entirely in its usefulness to human beings; giving up a loaf of bread denies me of value entirely due
to the opportunities that I have sacrificed. If I have so much bread
that it will all spoil before I can eat it, bread is worthless to me; if
I have plenty of other food, bread is a mere convenience; but if bread
is all the food I have, I will literally give anything I have to keep
it. There is no distinction between cost and opportunity cost; they are
2. All competition is monopolistic, and all monopolies are competitive.
is no such thing as a perfectly free market. There are always
differences between any two products--how far I must go to get them,
what color they are, whether or not they are the brand I am used to
buying. There are always setup costs, always costs to move and change.
Some markets are closer to perfect competition than others (software is
closer than hairstyling, because I can buy my software from anywhere,
but must get my hairstyling done near to where I live), but none are
perfectly competitive or ever could be. Conversely, there is no such
thing as a perfect monopoly. Even the monopoly on violence that the US
military has over its territory is only a very good approximation; there
are still fistfights and murders and the occasional militia. The more
wealth a monopoly gains by being a monopoly, the more incentive there is
for those outside the monopoly to topple or undermine it. All economic
decisions must be made in a space between competition and
monopoly, along a continuum of more and less competitive systems; there
is no free market and there is no Communism.
3. Money can buy happiness---in fact, that's all it can buy.
purpose of wealth is to achieve utility. Wealth that does not bring
happiness to those who have it is failing at being wealth. It is stuff, surely; but there is stuff on the Sun and stuff under the oceans. Wealth is only wealth insofar as it gives people opportunities to create value.
4. A dollar is a concert ticket, not a loaf of bread.
In fact this is a subset of the first maxim, but it's worth reiterating specifically. Money is intrinsically worthless. In fact, it's worse than this; the value of money is arbitrary.
(The value of bread is a function of our biology; the value of money
is a function of our social structure.) Money has only the value we give
it, in exchange for things that actually do have worth. Money is the
boarding pass for our economic community; it is the ticket we agree
everyone must have in order to participate in that community.
As such, we do not have to
respect the wealth of the rich or reject the wealth of the poor; the
only reason Sheikh Abdullah has money is that we agree he does. We could
rescind that agreement at any time, and there would be nothing he could
do. Whether or not this would be a good idea, and whether or not it
would be morally right, is a valid question. But "having money" is a
social relation, not a physical one.
5. To own is to deserve.
purpose of property is to regulate the exchange of goods and prevent
theft and violence. That is why property exists. The point of the
concept of "ownership" is to prevent people from simply taking whatever
they want. When we say that someone owns something, we are saying that he has a rightful claim to it, that others may not take away that claim without justification.
As such, when someone steals, he does not own what
he has stolen. It may be within his grasp, or it may be secured in some
locked facility that he has access to; but he does not own it; it is not his property. It would be good and just to confiscate that stolen stuff and return it to those people who really do own it.
this is precisely what we do not do in the case of tyrants. I mention
Sheikh Abdullah precisely because he is a thief, and the son of a thief,
and the son of a son of a son of a son of a son of a thief. He has no rightful claim to Saudi Arabia at all, only a de facto claim due to history and military superiority. Yet we treat him as if he really does have ownership; we buy his oil, rather than demanding it
at the point of a gun. Thomas Pogge puts it well: If you take a
warehouse by force, men with guns will come and arrest you and take the
stuff from you. But if you take a country by force, men with money will come and buy the stuff from you.
6. Leisure is labor.
people are not working, they are not simply taking up space. They are
playing, or resting, or spending time with friends and family. They are
making art, or thinking about philosophy. These behaviors have value,
value every bit as real and important as the value of a car or a loaf
of bread---indeed, much more so. The purpose of economics is to supply
our basic needs so that we can have leisure, because leisure is
so much more valuable than physical goods. All cost is opportunity
cost, and the opportunity cost of less leisure is massive.
For the same reason, it is often the case that working harder---working more hours, or at a more stressful job---actually robs you
of wealth, because the wealth you get from the extra money is
outweighed by the wealth you lose in the denied leisure. By working
harder, you are donating some fraction of your wealth to your employer.
There is some amount of paid work that is optimal; it supplies all your
basic needs while not taking away too much of your leisure. I hazard a
guess that this amount is vastly less than the typical work schedule of
Americans. It may be more like the typical schedule in Germany or
7. There is no such thing as a firm.
universe, there are no moral agents called "firms". "Microsoft" and
"Monsanto" are fictions. A moral agent can have needs, fulfill desires,
make decisions; a "firm" can do none of these things. Any "firm" that
we pretend exists is in fact composed of many human individuals that do
exist, individuals who can work with some degree of cooperation and some
degree of competition. A corporation can not have "worth" because it
cannot have needs; to say that "Microsoft has $100 billion" is
to say that an abstraction has a certain amount of abstractions. It is
to say that something we made up has collected a lot of other things we
made up---it's like saying that Harry Potter has a scar on his forehead,
or that Discworld is supported by four (or five?) elephants.
Governments, in fact, are the same way; there is no United States, only
300 million people who think of themselves (to varying degrees) as
Americans, and some 500,000 of these who think of themselves as
"government officials" and "civil servants". Barack Obama is real; the
United States is a fiction.
Now, it may be useful to apply this
kind of abstract modeling just so that we can make sense of what is
actually an incredibly complex and baffling system. Much of the
economics of "firms" is relatively sound once you realize that a "firm"
is just a shorthand for "a bunch of people who collaborate in this
particular way". But if everyone who presently works at Microsoft
suddenly decided to do something else, there would be no Microsoft;
there would only be empty buildings and meaningless ledger numbers. All
of these things are social constructions; they exist only to serve real
human needs, and insofar as they fail to do that, they should be