I talk unfavorably about economics here frequently, so let me walk things back a little bit and explain how the lens through which I view things is shaped.
First and foremost, I freely acknowledge that economics does have a value and a purpose. I don’t think I do a very good job of communicating that, because I focus mostly on it’s shortcomings as a discipline. I think that in a technical aspect, a lot of it works out just fine. But that, to me, only extends to textbooks. Once you try to apply the theories to the real world, once they leave the paper, I believe that the human factor muddies things and lessens the predictive value of economic theories.
Before we delve into that, I feel the need to reiterate that there are still real world applications for economics. For example, production and consumption, labor, etc. I won’t be ridiculous and assert that all economics is flawed and has no use. Clearly it does. Now, allow me to elaborate on where I see it getting muddy.
If the basic question at the heart of economics is, “What is the best way to use these resources?” then I think we first must answer the question, “Why do people do the things that they do and what do they value?” Answering the first question is easy–it’s often just a simple matter of mathematics. However, the second question is going to be more complex to answer because of psychology, philosophy, ethics, etc.
For example, perhaps we can figure out mathematically what the most efficient way to use resources is. But suppose that somehow violated our ethics or morality. What then? What is a person to do? Resources might have to be used less efficiently in order to fit morally or ethically in a society or culture.
Similarly, how do we determine what people value? There is no mathematical equation for this. People have basic needs to live and reproduce, to complete their biological functions. But as far as resource allocation goes, that will be directed by what people value, and what people value varies widely and is subjective in nature.
If you take a look at any budget, be it governmental or personal, you will see what people value. Economics did not lead them to those values, though. They made economics work for their values and their philosophies and ethics, NOT vice versa. In other words, you can’t answer the second question, “Why do people do what they do and value what they do,” by simply answering “economics.” And we’ll see why now, using budgets as an example.
If the premise that economics informs values were true, we should in theory see roughly the same proportions of money dedicated to the same things in virtually every budget. But we clearly don’t see that. Let’s take a look at the US budget first:
Now let’s take a look at the budget of another country, Australia:
Different countries form their economic system differently because they answer the, “How do we best use these resources?” question by using their values and ethics, philosophy. And again, these things vary from culture to culture, person to person.
Let’s talk about some more examples of how values and economics are related. Let’s talk about contraception. Planned Parenthood is a hot button issue in America right now, with a lot of politicians and states wanting to defund it. Why do they want to defund it? It isn’t because of economics. Of course it isn’t. Because contraception and it’s impact is something that can be studied, and there’s an ample amount of evidence to show that access to contraception lowers birth rates and disease transmission, and you can generate a dollar amount saved by offering it and a dollar amount needed to budget in order to offer those services. If it were simply a matter of economics, contraception, sex ed, and a whole host of other reproductive health interventions would be no-brainers. Put another way, leaving these programs intact makes more economic sense than getting rid of them.
But the economic decisions are made through the lens of values, particularly religious ones. In many instances, in many states and communities and our congress, religious values supersede economics. Again–economics has not informed or influenced psychology or philosophy or ethics or values here–indeed we see that the opposite is true, that the values and ethics and philosophies again are the things that influence our economics.
And those things can’t be quantified on paper, and they’re the reason why economics often loses much of its sway with me in the real world when you try to apply it. Let me offer another example of where I believe economics fails us: creativity and innovation.
Why do people create? Why do they innovate? Now let’s frame that in an economic context: do market principles like competition and profits cause people to create? Well, now that’s an interesting question. Let’s take it a step further. If we removed those elements of the premise–competition and profit–would people still create? Would they still innovate?
Yes, of course they would, because economic profit and competition aren’t the only kinds of incentives out there. They aren’t even the only kinds of profit and competition out there. And for an example of this we need look no further than Dr. Jonas Salk, the father of the polio vaccine. Dr. Salk refused to patent his vaccine, which meant he missed out on a boat load of money, but also that the vaccine could be widely available and affordable. He believed, in short, that it belonged to the world. But let’s look at that decision through an economic lens, specifically keeping competition, profit, and innovation in mind.
It’s highly arguable that Dr. Salk created the vaccine independent free market incentives. To be clear and fair, a free market system put together the manufacturing and distribution of his work. But “free market competition” and “market shares” and “economic profit” clearly, arguably, did not increase his genius, his desire, or his motivation. In other words, economics did not provide the incentive–personal values and philosophy did.
Let’s go back to the question, “Why do people innovate and create?” and provide two explanations. 1) to make the world a better place/to make life better, and 2) to make money. Now let’s perform a thought experiment.
What if we removed one of the possible reasons? For example, if we removed “making the world better/life easier” would people still create and innovate? Well, that would leave creating and innovating solely for the sake of profit the only remaining option. Now think about a society wherein the only reason to create and innovate would be to create wealth. Could such a society work? Sure, of course it could. People would see needs that were unaddressed and then create accordingly in order to fill that niche, and by doing so would turn a profit.
Now, what if we reversed the thought experiment? What if we took away the profit part, so that “to make the world a better place/make life easier” was the only answer. In such a scenario or society, people who innovate would not be compensated with money for their creations, for their improvements. Would people still do it, then? Yes, of course. Dr. Salk is a prime example of someone with this type of attitude.
As I hope this thought experiment showed in the real world the answer is that both explanations are not mutually exclusive; people create and innovate for both reasons. I’m not trying to say that one or the other is really more correct. I’m merely attempting to illustrate that reducing innovation and creativity down to only economic terms is going to generate an incomplete picture of what actually happens in the real world, and that trying to motivate people to create and innovate using only economic incentives is bound to experience failure. Such a reductionist view misses a lot other very important factors.
And that’s ultimately why economics leaves me dissatisfied as a field of study. Too often economics ignores the human factor, or purports to impact the human factor, somehow mitigating it. Such assertions are false, though. While someone might seem to be motivated by economic factors, that can further be reduced to value and philosophy: a person is only open to economic incentives because of their values. In other words, economics doesn’t create values, values create economics. And until economics does more to take that variable and subjective human factor into account, it’s always going to be quite lacking for me.