Beyond OWS: Problem #1: The Market Ain’t So Free
This post is one of my series on the Occupy Wall Street movement, on the problems that I believe are underlying the protest and, at the end of the series, some proposed solutions. This post is on the first of the three core problems: that the market makes us miserable:
The Occupy Wall Street movement began as a collective expression of outrage at the current economic conditions in the United States. Crippling public and private debt, high unemployment, gaping income inequality and a recession caused by excessive borrowing and reckless behaviour on Wall Street. Yet, at the same time that many people can’t find a job, there are massive bailouts for those on Wall Street who precipitated this economic disaster.
But these are just the surface problems. While many OWS protesters are championing these issues (among others), they’re but symptoms of a far deeper malaise. If the OWS movement is to go beyond being a protest, it needs to direct its outrage not only at the present economic circumstances, but at the deeper causes of those circumstances. And that’s what this post is about.
Because economics is wonderful tool, but a horrible master. And we let it become our master.
The word “economy” originally meant “efficiency” or “frugal”, particularly in terms of management of resources. It used to be an approach. But now it’s a thing, and it’s a thing that we serve.
This is arse-backwards.
Economics is a science that helps us understand how to manage resources to reach a desired end. If people desire X, the market will often be the most efficient process to produce X to meet that desire.
But sometime around the mid-20th Century (1944, to be precise – the year in which Friedrich Hayek’s The Road to Serfdom was published), we let economics stop being the arbiter of the means to achieve some valued end, and opened the door for economics to become the arbiter of the values themselves.
According to this ideology (now often called ‘neoliberal’), if the market deigns not to produce some product, that’s because we, by definition, don’t value that product. Likewise, if the market encourages the production of some product, that’s because, by definition, we value that product.
This is wrong.
It wouldn’t be wrong if human beings were like homo economicus, i.e. perfectly rational agents, and we had access to all the relevant information to make optimal decisions that further our clearly-understood interests weighed up over the near- and the long-term.
But we’re not. We’re homo sapiens, a species of which one should never overestimate its rationality.
The other fallacy of contemporary free market economics is the efficient markets hypothesis. Yes free markets are efficient – often far more so than regulated markets. But they’re not perfectly efficient.
Certainly, one of the triumphs of the market is that money works as more than just a medium of exchange – it represents information. If a product goes up in price, that says something deeper than that we need to pay more for it. It says that demand has increased, that it’s more desired, that it is more valued, or that supply has decreased. And the information is spread as quickly as it takes for someone to strike out a price tag and write in another figure – or for someone to run their eyes over a store catalogue or website.
On the other hand, you could sit back and estimate how many of a product need to be produced next year, and mandate that they’re built by a single company – i.e. the centrally-planned economic route. This has the benefit of economy in the sense that there’s little wastage, little redundancy. But, astoundingly, this is less efficient than allowing multiple companies – each with duplicate design, engineering, manufacturing and management – to compete and build that product using pricing as one of the guides as to what people desire.
But markets aren’t as efficient as we’d hoped. Information is rarely transparent. There are individuals, groups and companies that don’t want you to have certain information. As a result there is often informational asymmetry – often in favour of the seller – which puts the buyer at a disadvantage when it comes to selecting the best product to satisfy their desires.
People also react to information in irrational, and often unpredictable, ways. And there’s only so much information one can digest in a finite time, leading to error-prone heuristics guiding behaviour rather than calculated reason.
Growth over sustainability
These two problems have compounded another: economics intrinsically doesn’t give a rat’s arse about sustainability. The future is less valuable than the present – that’s the principle of ‘discounting’. And the distant future – i.e. the world our children and grandchildren will live in – is often considered to be worth bugger all.
Competition also demands that companies consume resources as quickly as the market demands, regardless if that leaves us with none tomorrow. Then you get the ‘tragedy of the commons’, where an unregulated shared resource will be depleted even by rational agents or companies, ultimately to everyone’s detriment.
Current economics is also based on a growth paradigm. It makes growth not only as the leading metric of economic success, but it assumes that growth is intrinsically good – so it’s no longer a metric to measure something, but a metric that is striven for as an end in itself. The assumption is that growth fundamentally means the economy is better able to satisfy the desires of those operating within it. But that’s bunk.
It’s bunk because the satisfaction of our desires aren’t bound to economic productivity (as I’ll explain below), and because it assumes the inputs into the economic equation are effectively infinite. But they’re not infinite. So our entire economic paradigm is predicated on a fundamentally unsustainable assumption.
The final – and possibly the greatest – problem with economics is that we pursue wealth instead of wellbeing. The neoliberal assumption that they equate to the same thing is utterly wrong.
Humans have a complex psychology – which is something I’m exploring in my PhD thesis – and our understanding and expression of our desires and interests is far from being a black and white issue.
Basically, we often don’t know what makes us happy. Most of us are really quite at a loss as to how to promote lasting happiness – or wellbeing – and instead chase fleeting happiness – or pleasure.
I’m sure all of us can recall countless times when we’ve prioritised some activity that will bring us immediate pleasure – eating a sweet or fatty meal, drinking a lot of alcohol, sleeping with someone opportunistically – that has ultimately brought us greater unhappiness in the long run.
And many of us report that we’re stressed, anxious, that we feel under pressure at work and at home, that we’re afraid we might not be able to afford the rent/mortgage/credit card repayments, afraid we might lose our job – even if we don’t like our job very much. We report that our lives lack deeper meaning and purpose, and that we feel isolated, even when surrounded by friends.
One of the greatest misconceptions in popular psychology is that more pleasurable experiences will lead to greater wellbeing. Sadly, this is simply not how our psychology works.
Instead, chasing pleasure often involves working more, being more stressed, having less free time, and we end up buying things that give us fleeting bursts of pleasure and then fade away. Our psychology is built to normalise our experiences – even pleasurable ones – so even that shiny new sports car fades into the background in a surprisingly short amount of time, yielding little ongoing pleasure.
This is the very definition of the hedonic treadmill: we have to keep running just to stay where we are. And many of us are kept miserable because of it.
In fact, it turns out wellbeing is promoted more by a lack of negative emotions than an abundance of positive emotions. Someone who lives without stress, without fear, without anxiety, is far more likely to be happier more often than someone who works in a high-paying, high-stress job, and who spends far more on pleasurable goods and experiences.
Yet our economy is built around the hedonic treadmill. Despite the neoliberal assertion that the market fundamentally serves our desires, it’s actually working against them. The market only serves to push our our surface pleasure buttons, but it leaves our lasting wellbeing listing.
This is what is wrong with the system – at least in terms of economics. Certainly, inequality is bad – particularly because it prevents lower income individuals from having access to the opportunities to steer their life the way they’d like. But even worse is that the promise of the free market to make us happy is illusory.
This is not to say that the market should be scrapped. I am certainly not advocating centrally-planned economies. The market is a wonderful tool. All I’m suggesting is that we’re using it wrong.
In the next post I’ll cover the second of the three big problems with ‘the system’: politics, particularly with the failure for the 20th century relics of the Left and Right to offer genuine solutions to 21st century problems for 21st century (i.e. post-baby boomer) people. Then I’ll move on to the third: ‘society’, which will touch on some of the points raised here about the hedonic treadmill, and ask: what is it we want from life, what do we want from society? And suggest whatever that is (and terribly few are even asking), it’s not delivering.
Finally, I’ll offer my three solutions. But I think one 1,300 post at a time is quite enough for all of us.