I was reading John Steinbeck‘s Cannery Row last night, and I was really struck by how the following passage speaks to the forces behind our current economic predicament:
“It has always seemed strange to me,” said Doc. “The things we admire in men — kindness and generosity, openness, honesty, understanding, and feeling — are the concomitants of failure in our system. And those traits we detest — sharpness, greed, acquisitiveness, meanness, egotism, and self-interest — are the traits of success. And while men admire the quality of the first, they love the produce of the second.”
The usual cheap shot after citing a literary figure would be to argue that modern economics can’t possibly grapple with such issues. But it can. The incentives that Steinbeck describes are the incentives described in standard economic models. Agency theory is almost entirely devoted to developing mechanisms to deal with the fact that private and social interests often diverge; information economics tells us a lot about when these incentives are active; and behavioral economics tells us how people balance the opposing forces Steinbeck identifies.
Evidently, U.C. Berkeley’s Barry Eichengreen agrees, arguing that:
One interpretation, understandably popular given our current plight, is that the basic economic theory informing the actions of central bankers and regulators was fatally flawed. … But another view, considerably closer to the truth, is that the problem lay not so much with the poverty of the underlying theory as with selective reading of it — a selective reading shaped by the social milieu …
Those same traits of self-interest that Steinbeck describes shape not only the economy, but also how economists choose to represent economic theory. Here’s Eichengreen again:
consumers of economic theory, not surprisingly, tended to pick and choose those elements of that rich literature that best supported their self-serving actions. Equally reprehensibly, the producers of that theory, benefiting in ways both pecuniary and psychic, showed disturbingly little tendency to object. It is in this light that we must understand how it was that the vast majority of the economics profession remained so blissfully silent and indeed unaware of the risk of financial disaster.
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The reason we’re caught in this “only greed and self-interest produces anything or can make people successful, but it leads to dishonesty and causes harm to others!” is that we don’t distinguish between fair, mutually beneficial self-interest and dishonest self-interest where the risk is in someone else’s hands, at someone else’s expense. All the benevolence in the world won’t do the work that a greedy businessman can do, but that greedy businessman needs to be risking his own assets.
My econ professor always used the word “Greedy” instead of “Rational”
Justin time John
We should never flush any drop of ink that leaked from Steinbeck’s Pen. Leaving nothing unnoticed he was able to describe in apt detail, detail that opens dark corners of our hopeful minds.
Thanks, Justin
A
I a recent conference, one of the participants quoted a heterodox economists – sorry, I don’t remember his name – on the reason why neoclassical theory, despite having been proved wrong several times over, was (and is) still the dominant economic discourse. It’s because “it makes people who are comfortable, feel comfortable” about the world and not because of its “scientific” value (this last part is my contribution)
Steinbeck is full of economic insights. In The Pearl, he wrote:
For it is said that humans are never satisfied, that you give them one thing and they want something more. And this is said in disparagement, whereas it is one of the greatest talent the species has and one that made it superior to animals that are satisfied with what they have.
Steinbeck effectively points out that wants are unlimited and that these unlimited wants (which some say are greedy) allow progress.
All the benevvolence in the world is, actually, what the world depends on. The greedy businesman would not have survived without a mother, father, or some substitute to give him – surprise surprise – free nourishment to grow him to full size. The greedy businessman is an epiphenomenon, only useful in so far as he serves the basically unselfish whole – for indeed, unselfishness, taking care of others, is the root of all human societies, was in the days of the pharaohs (the most successful human society so far) and will be when capitalism is dimly remembered. There’s no other means of survival.
Surely there are two other traits that are missing, namely discipline and judgement.
Without these then you may go too far down either path – you will be too greedy, too generous etc.
Either way leads to your downfall.
Makes me want to reread Cannery Row (even though I reread it only 3 years ago).