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.
and 
. You can also watch it on 
You may want to look more towards Ayn Rand for ethic conduct of business while maintaining a free market. Keeping the crooked politicians ethics values away from our economy should be the first order of business.
When I was 17 (in 1967) I got a summer job on a merchant ship. The first day on the job an Able-bodied seaman was showing me the ropes. “be careful what you do because we’re all in the same boat”. Economists should remember that.
By the way, our merchant marine was the first industry that got outsourced in the drive to lower wages of American working people. “Flags of convenience” they called it.
Merchant mariners who fought in most of the major battles of WWII had higher casualty rates than the armed services yet they got forgotten when veterans benefits were handed out. Now they’re fighting pirates. Let’s remember them on May 22, Maritime Day, since they get forgotten on Memorial Day & Veteran’s Day.
As he signed the GI Bill in June 1944 President Roosevelt said:
“I trust Congress will soon provide similar opportunities to members of the merchant marine who have risked their lives time and time again during war for the welfare of their country.”
They’re still waiting:
http://www.usmm.org/
http://www.usmm.org/urgent.html
I frequently acknowledge that sociopathy, payoffs and backroom deals are the only way to get big things done. My approach of trying to be a good neighbour and honest broker might get rewarded in the next world…or maybe not.
Years ago I read a tale of two college students. One student bought old cars and fixed them. He then sold them and made a profit. The other student bought old cars and paid OTHER people to fix them. It is easy to see how this works in the real world, and how the first student made friends and stood behind his work and the second student made more money, and fewer friends.
But let’s not get distracted here. The economic system was not flawed…it was gamed. Finally, people lost faith in the system because of the excess of bad actors in the game. Basically they did not play fair.
The faster some people go to jail, the quicker the economic recovery will be.
If I have seen further it is only by standing on the shoulders of giants.
– Isaac Newton.
I think Roger is onto something – namely, too many ‘successful’ people conveniently overlook the contributions made by many others before them, and sincerely believe they did it all by themselves.
A favorite quite of mine is from Reefer Madness by Eric Schlosser:
We have been told for years to bow down before “the market.” We have placed our faith in the laws of supply and demand. What has been forgotten, or ignored, is that the market rewards only efficiency. Every other human value gets in its way….No deity that men have ever worshiped is more ruthless and more hollow than the free market unchecked…Left to its own devices, the free market always seeks a work force that is hungry, desperate, and cheap-a work force that is anything but free.
Seems you have to define the economic predicament. Nobody has enough stability is one predicament. An economy based on paper and promises is another predicament. A nation that sent it’s manufacturing outside of it’s borders is another predicament. An unemployable segment of the population and an underemployed educated segment of the population is another confounding factor. I don’t buy that greed and self interest is the vehicle that drove us here. It’s far more the fault of the cult of the individual. We’ve forgotten the fabric of community and it’s importance to the common good. We’ve always had a tendency to curse or worship the wealthy. It didn’t matter much if they worked hard for the money or had it handed to them on a silver platter. What did matter was how they treated people once they had the bucks. Success measured by the trail of ruined lives or success measured by the number of persons lifted up? Societies limits on the individual capacity for greed used to be regulation. Deregulation of every conceivable barrier to wholesale theft has been systematically dismantled in favor of allowing the individual to flourish with predictable results. There have been and are good business people and great corporations. It’s time we started admiring them, but who’s going to write a headline about a great company when Bank of America needs a few more billion of tax payer dollars. Bad news sells.
Besides, since when has economics been a hard science?
It’s pretty accurate predicting yesterdays weather, but predicting the future is not their strength. The fact that most were silent in the face of the gathering storm is a testament to their sense of self preservation. “it is better to be thought a fool than to open your mouth and remove all doubt” fits here.
Wolfers article is quite cogent, but I take exception to the statement “The usual cheap shot after citing a literary figure would be to argue that modern economics can’t possibly grapple with such issues.”.
A “cheap shot” is colloquially used to indicate a barb aimed at an unsuspecting foe, or an unexpected and unfair attack. I presume he meant to say “The usual excuse after…”
Just splitting hairs..
I’m glad you’re writing about this. As a culture we’ve internalized these “rules”, such as, “Nice guys finish last.” “You have to make heads roll.” “Only dicks get ahead.” “You have to kick butts to get things done.”
This, of course, is nonsense. We’ve all known people of great accomplishments, in life and in the workplace, who have actually succeeded because of the way they’ve worked with people. They’ve known how to get the best from those they’ve worked with by showing respect, acknowledging efforts, and leading by example.
“Dicks” aren’t respected. They may gain in the short run, but they pay for it down the road. They sometimes get sabotaged, or passed over or left out of plans for the future.
Competence, initiative, and diligence aren’t incompatible with maintaining our goodness and humanity. In fact, they’re often inseparable in the highest achievers.