Rethinking Economic Assumptions
I have recently had the opportunity to participate in a forum wherein the participants have been exploring the foundation of the current global economic system and challenging some of the basic assumptions that may not represent our current understanding of reality. Though I think virtually everybody on that forum is far more qualified and capable of providing meaningful input to the discussion, I wanted to share some thoughts that I posted on my blog.
My own formal training in economics was only at the undergraduate level, most of the time of which I was fairly intellectually comatose. My interface with our economic system has instead been mainly as an entrepreneur. In doing so I feel and daily taste the fruit of our system but I find that I rarely take the time or energy to think deeply and penetrate the assumptions underlying such a system. As such I feel it is helpful for me to start from the most fundamental assumptions that I believe to be true, state those assumptions explicitly, and work my way from there. I unfortunately don’t have much of a toolkit for this type of thinking, so unless I start from the absolute basic underlying assumptions of what we know to be true I find time and again my thinking gets hijacked by largely unexamined patterns of thinking that, because I have been thinking this way for so long, become my go-to default modus operandi. I hope that the following provides some useful and relevant content for the ongoing discussion surrounding the current global economic situation and that it is not too basic or elementary. If so I hope you bear with my attempt and I very much welcome any assistance in ways that I can improve my approach or thinking on these topics.
After presenting some extremely compelling evidence (which exists in every major field of study that I’ve been exposed to) one of the questions was of “How is it that “cooperation, mutual aid, and reciprocity are the essential characteristics of the unified world of being”, but our thinking about economy is premised on competition and self-maximizing behavior?” I had the following thoughts:
It is my understanding that the motivation for any decision or action is based on our perception of value. Those perceptions of value, of course, may vary in accuracy as they relate to reality. It seems to me that what Abdu’l-Baha explains in his writings is that unity is not something we achieve but rather it is something that simply is, the consciousness of which may or may not be present. That what is essential is the unity of conscience, or a collective recognition of what reality is. In explaining that “reality is one” and that, as such, “different opinions must ultimately become fused into one” it seems there is an explicitly stated ontological assumption about the structure of reality that must inform all efforts to build societal institutions and systems. Of course the development of any system, including the economy, will be successful to the extent that it is in line with this fundamental structure of reality. If I try to build an airplane deprived of any understanding of the law of gravity or of aerodynamic forces, my efforts will represent the aggregate of what will amount to a bunch of wild guesses. Any attempt at the development of a societal system devoid of an understanding of the basic structure of reality seems like it also will amount to an eloquently articulated roll of the dice. Perhaps one lens through which we can view the 20th century is as a series of failed social experiments wherein charismatic individuals with very compelling wild guesses won enough of a following that we pursued ideology after ideology with often devastating results.
Of course, if I design a plane informed by the fundamental laws governing flight then my efforts, though they may be flawed at times, are at least taking place within a larger understanding of why something may or may not fail. If these efforts, in turn, are carried out within a constant and searching re-examination of the laws underlying reality, then laws of which I may have been wholly unaware might become evident. Thus, if unity underlies and defines the very structure of reality then it makes natural sense that “cooperation, mutual aid, and reciprocity” must exist. Examples of this in the human body are abundant. When my liver competes with my kidney for blood, in medicine we define that as a pathologic state. The cell is a symphony of selfless harmony…if the nervous system holds the electric charge for itself or if the neurons, its component elements, have a cost to entry or exit instead of having seamless and selfless transfer then our operation and efficiency is dramatically slowed. Countless similar examples can be found within other fields of study.
Furthermore, I think there may be value to explore what we understand of developmental psychology in exploring the question above. We have been able to define different stages of development, each of which have certain characteristics that are particular to that stage of development. Broadly speaking, within the characteristics of childhood we often see a manifestation of selfishness or self-centeredness. Of course this manifestation of selfishness is an important characteristic necessary for the progress of the child, but if we attempt to understand the totality of the capacity of the mature adult strictly through the lens of what it means to be human in the stage of the child, that view will not afford us an accurate understanding of that which we seek. Additionally, if we carryover traits that were essential for the progress of a human being in an earlier stage of development into a later stage of development, we see that those very characteristics that ensured our progress become the reins that hold us back in that later stage.
As such, an economy that is premised on competition and self-maximizing behavior, when viewed through the lens of human development, may have outlived any value it once possessed. I think we could also safely say that if we continue to hold onto these characteristics of an earlier stage of human development, it will inhibit any progress whereby the system of homo economicus may evolve into the earliest expressions of the system of universal man.
In conclusion (and perhaps a bit out of context) I have two questions that I would like to ask.
1) If we are starting from an assumption of unity underlying reality, how much do we really know of the social or spiritual laws of the universe that would be derived from this reality? Presumably these would be the laws that would inform the development of any new system and it seems to me that a searching examination would need to be concomitant with the development of said emergent system.
2) A personal question such that I can contribute more effectively in future posts. If the basis of true economy is to be one wherein there is an underlying assumption of an integrated and unified structure of reality…. How do I, as someone who has become a great gladiator in the arena of competition and am a shamelessly self-interested maximizing player reframe my thinking such that I am not innovating within the constraints of a defunct system and my admittedly defunct mental model? I find it very difficult to free myself of my education, training, experience and daily life so that my thoughts and ideas are born from a very different milieu and could use some help here.
Tags: assumptions, economics, HEG, unity
April 2nd, 2009 at 12:45 pm
I found your blog on google and read a few of your other posts. I just added you to my Google News Reader. Keep up the good work. Look forward to reading more from you in the future.
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April 2nd, 2009 at 3:02 pm
This post is really great. I appreciate your insight and the process that you are going through. I have had to push my assumptions aside over the years and it is a very hard task since they are constructs which we are unaware of most of the time.
One of the principles which has been brought to my attention in other areas of my life is the importance of relationships. Now this might seem obvious but I invite you to go a little deeper down this rabbit whole. I now have three children and their education and development has become one of my priorities. When they were first born I thought of qualities which I wanted them to learn and decided to bend my energies to provided them with the opportunities to internalize those lessons. However, with time, and mostly around two years of age, I learnt that there are many stages at which it is almost impossible to teach anything lasting to them. They are just not at the stage at which this segment of the population is able to learn sharing and cooperation.
Now. I have to admit that this was counter to what I a assumed would be true and for most intents and purposes, my practises were functional. But is was clear that working of developing skills was not the solution to the problem.
That is when it was brought to my attention (by my loving wife) that the issue was the relationship. The impetus of the struggle is usually set by the fear of an individual of not being able to meet their own needs or the needs of those close to them. In the case of a kid, they don’t understand time so telling them to wait 10 minutes does not help. They want it NOW! (hey just like the markets).
So what is the relationship and how does it fit. In the case of my kids it is simple. If they love me, they will follow me from their own volition and of their own accord. I know it sounds a little manipulative a first but that is not the way it is intended. That was the part that was hard for me to get over. I had to see it in practise first. Once I started focusing on the relationship and not the actions they took, I had to change most of my assumptions about the interactions. I had to listen a lot more and really listen since I had to be able to act based on their input. I should apologize for going all ‘developmental psychology on you guys but that is where my head was when I read the question.
So the answer to your question from my perspective is:
1. Relationship are first. (not profit or others) (just like cell communicate first)(i think - not a dr.)
2. Relationship: when you have relationship with someone. And I mean a true relationship with then it becomes hard to do things that are not in their best interest. If you love them you would not hurt them.
O MY SERVANT!
The best of men are they that earn a livelihood by their calling and spend upon themselves and upon their kindred for the love of God, the Lord of all worlds.
Baha’u'llah
I will give an example. Recently I was looking at buying a house for investment purposes. I had looked at the place and determined that it fit all of the criteria which would make it a good investment. Then I started doing the numbers (cash flow in this economy is king!). I started talking to myself, “Asking price… I can bring that down by 10% to 15%. If they are selling now they are desperate.” Then I focused on other costs. Added it all up my head and thought about what I would have to rent the house for to make it all worth it. “This could work,” I said to myself, “I will have to bring the rent up by about 15%. I can pull it off the market will bear it. I might have to get rid of current tenants since they wont for the hike.” As I said it, I realized the implications of my whole conversation. I was willing to bend in on a person whole was desperate to sell and to kick some people out of their home in a bad economy (and ensure that their rent would go up) for my benefit.
As I write it, it sounds a lot worse that I had originally thought it to be! But I think it illustrates the problem in the world economy. We allow ourselves to act in certain ways because we don’t know the lives of those affected by our actions. In a world in which we are supposed to act like members of one family, we then have to spend a reasonable amount of our time developing, building, strengthening and maintaining our relationships with one another.
The current growth patterns of the faith reflect this in an even greater way. All the core activities are built on relationships and their success has been proven invaluable. I don’t think that any human structure could do without a system which encourages the development of relationships. And I don’t mean networking as a substitute.
I am sorry that his reply is so long. I started writing and it got away from me.
ae
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April 3rd, 2009 at 10:12 pm
As far as #2… I think the bridge to developing an economic system based on the structure of reality (instead of the structure of the human ego) can be found in the mathematics of John Nash, subject of the film “A Beautiful Mind.”
Not being a mathematician I cannot verify the statement in the film “Adam Smith needs a revision” but I understood from a sociological perspective that there must be a more profitable system than competition economies — cooperation + competition. It gave me chills to see that someone had proven this in hard math because I’d always felt it deep down in my bones.
Pure competition fosters an environment of innovation but also creates a petri dish for replicating the worst in human character as inevitably those who are willing to cross lines of morally acceptable behavior profit like viruses out to destroy anything and everything in their path. The examples are too numerous to mention.
Competition PLUS cooperation is in my mind the next stage of human development. It is enlightened self interest (as in old school economics) PLUS social welfare/balance taken into consideration. As Nash envisioned and the math proves, it will lead to more profitable economies. We have yet to discover real wealth, either in spirit or in economics. Both discoveries will occur as our evolution to a higher stage of consciousness is inevitable. In fact, our very survival depends on it.
http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-the-protesters-are-the-ones-we-should-listen-to-at-this-summit-1661047.html
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April 22nd, 2009 at 2:44 am
[...] environment. Though I have been mostly a lurker on the economics forum I mentioned in a previous post (and here is to show that lurker learning is one of the value propositions of an online forum [...]
April 29th, 2009 at 11:08 am
I think the key is balance.
To use your model of developmental psychology, the adolescent may out grow, and even rebel against the nature of the child, but the mature adult holds the lessons of every stage of development. To apply it to the issues of selfishness and selflessness, consider the typical case of a western upper middle class child who grows up in relatively extreme luxury compared to the children around the planet. Say that this child in their youth becomes informed of the world, comes to care deeply about the well being of their fellow man and spends some extended period volunteering without any financial or personal gain, beyond the spiritual development of service of course. During this period, the youth will probably exercise a great deal of selflessness, contending themselves with very little. Now, consider this individual becomes a parent, and their thinking again changes. They now insist on a higher quality of life. Things they might in the previous stage have given away freely, with no thought of keeping for themselves, they will expect and work toward. Of course it’s ludicrous to call a parent working to provide for their child selfish, rather the instinct for self preservation becomes a tool.
To address the same thought in your example of the body. While I’m not a doctor, my understanding is that if a portion of the body is injured or diseased it draws resources from the rest of the system so that it can recover. In short what is healthy in one instance is unhealthy in another.
And the airplane metaphor. Well, those zany flying machines seen in old sepia tone gag reels were trying to address partially understood realities at the expense of others: weight, balance, thrust, propulsion, lift, drag, aesthetics, etc. Modern designers are constantly striving to balance these different concerns, often finding value in previously discarded ideas. The helicopter is a prime example.
Having said all of this, I refuse to answer your questions because I feel like any answers I have to share are as easy to give as they are difficult to implement.
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August 18th, 2009 at 4:54 pm
This doesn’t address your questions, Todd, but provides a bit of commentary on economic assumptions.
First, most economists realize that the assumptions that make their models work mathematically, are not realistic. They are really just a benchmark, so to speak, with which they can compare different ‘real’ circumstances. This makes a certain degree of sense to me; it’s nice to have a placeholder of a so called perfect world to measure ourselves against. However, to select assumptions purely to satisfy mathematical models seems backwards. Furthermore, the authors of most economic assumptions clearly had no idea about the true nobility of human nature.
More recent economic research shows a growing fascination with violations of the core assumptions of behavioral economics, so perhaps there’s hope for the ‘dismal science.’ A very simple experiment that we did in grad school was called the ‘altruism game.’ In this game one person is given a sum of money and they write down a sum that they will give (donate) to their partner. Now, behavioral economics tells us that the amount they would give just 1 cent since, that the minimum amount that will improve the well-being of their neighbor (a pareto improvement) while satisfying the self-interested utility maximizer assumption. However, the experiment reveals that the average donation is much closer to 50%. There is no economic theory to explain this action, but most people with think “yeah of course it is, that’s only fair.” Unfortunately, fairness plays no role in modern economics, only efficiency.
There are a couple alternative offshoots of modern economic theory that perhaps you are already aware of: Ecological Economics and Post-autistic Economics (terrible name, I know). They deal with some of the shortcomings I mentioned. Here’s some links for anyone who’s interested:
http://www.paecon.net/
http://www.ecoeco.org/index.php
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