It’s the economy, stupid!

It’s the economy, stupid” It sounds like a tagline that could have been launched by some Wallstreet brokers in the 1930s to get the people to go with the program and increase domestic consumption – or any other measure intended to ‘fix’ the economy. It wasn’t, of course. It was one of the three pillars of the Clinton presidential campaign in 1992. That doesn’t change the belittling ring it has to it. Especially if you imagine it is a pedantic 13-year old saying this to his younger brother. I think there’s something else really wrong with this statement.

The statement is a hot one in Europe right now. The economy is in the spotlights, more than it generally is in more prosperous times. There is obviously a problem in Europe and it has to do with the economy. It seems to me that the fundamental problem is not so much that the economy is broken. As a collection of mechanisms, it surely isn’t perfect and still sensitive to excesses of human nature – such as the tendency of some people to accumulate wealth without any moderation. But economic transactions still occur and they are governed quite effectively through the institutions that jointly make up this abstract beast called ‘the Economy’. The current state of affairs in Europe is one of a decline or even reversal of economic growth. Perhaps the economy works just fine – we just are not very happy with the current outcomes of the complex of economic mechanisms.

I think (warning: personal opinion ahead) that the problem of our discontent at current economic performance is twofold. Firstly, there is the obvious matter of sub-par production and export to other regions. In order to entice other people to give you money, you have to offer something in return and Europe as a whole is lacking in that department in comparison with regions that show better economic performance. But the second cause, I believe, is that of our econocentric vision. We (Europeans, westerners, perhaps humanity at large) do not distinguish between economic prosperity and well-being. We seem to act on the premise that society must serve the interests of this abstract deity called ‘the Economy’ instead of the other way around. I think everyone will agree that it is in fact the other way around, and most people will argue that this is really obvious. But I don’t see evidence of that fundamental realization in most of the recent rhetoric surrounding the eurocrisis. Most of the talk is about how to fix the economy, while the purpose or “raison d’etre” of the economy is left out of scope.

So why don’t we go back to the basics? It sees to me that the economy is a collection of mechanisms that enables the fair (subjective term!) distribution of resources over the population. Moreover, the market economy does so in a highly decentralized manner. This lack of centralized control can cause emergent effects that are unforeseen or uncontrollable (cf. Normal Accidents Theory). At the same time, local control by individual actors is also limited: individually, we cannot influence the overall economic performance of a region. This leaves us with a situation in which all of us are subject to a larger system and all we can do is try to contribute to the economy in the hope that the economy will then ‘do’ something for us. If it doesn’t or if we aren’t capable of contributing (e.g. due to high unemployment), we obviously are dissatisfied. Which is the case at this point.

This may start to look like an argument for drastic measures such as implementing a centralized mechanism based on (God forbid) Marxist principles. It isn’t. I am arguing that if we want to improve the market economy, we have to be prepared to look at the basic principles on which our society is built and explore all pathways. Exploration on a philosophical level does not imply that we should drastically redesigning society on all fronts. I do believe it can inspire relatively small changes with substantial and (hopefully) desirable effects. This is one of those instances where theory can inspire decision-making in a complex environment – as I argued in my recent post on land management.

One of those fundamental things I think should be considered look at is the scope of activities that are subject to economic principles. The problem of bad economic performance would be limited if it only affected, for example, luxury goods. Not being able to afford a new LCD TV every 18 months is perfectly acceptable. Not being able to afford the medical care for your elderly parents or children, however, will certainly bug most people. Perhaps part of the current problems that we face is the fact that we had so much trust in the effectiveness of economic mechanisms to balance supply and demand that we applied it to all areas of life. Practically all human activities can be thought of as transactions and indeed, we made nearly all of them economic transactions. If you look at your daily life, what aspects of it are not subject to economic mechanisms?

What is more, it also seems that we increasingly act on the premise that if something is not an economic transaction, then apparently the activity has no value and is not necessary. This is market mechanisms at their best: if something has no economic value, then it will disappear from an economy. The problem is that many things do have value, but they are not viable parts of the economy. Many of the ‘softer’ aspects of human life fall in this category. What is the economic value of feeling accepted by your peers, of the ability to escape from the information overload into a peaceful forest? Can we put a price tag on a religious or spiritual experience? How much should I invest into an hour of meditation and what monetary benefits will it bring? What is the equivalent in oil, wheat, iron ore or copper of the feeling of satisfaction resulting from having connected on an intellectual and a personal level with someone you just met? Most of these things have a larger effect on my personal well-being than the balance of my bank account. The economy touches these aspects of life, but I feel it is pretty incompetent at effectively governing them in accordance with my needs.

These thoughts are intertwined with the inspiring discussions I have had over the past months with many people. Two of these people are Rob Adank and Hans Rutjes. They seem to share at least a part of what I wrote above, and they put it into words (more efficiently than I just did, I might add) in a recent column on the Dutch website “Commercieel Excelleren”. Together with Nico Blaauw, we are thinking of initiatives to bring economic performance and human well-being together (more on that in due course!)

Of course, we are not the only ones to have a go at this challenge – and the more, the merrier! One thing I am particularly looking forward to, is the inspiring symposium that is being organized as part of the festivities surrounding the retirement of my promotor, the Radboud University professor Ben Dankbaar. Presentations will be given by notable figures with a proven track record in academia on exactly the subject matter that I shared my thoughts on above. Obviously, their thinking is much more advanced and developed than mine. And all this inspiring vision can be absorbed at absolutely no cost. How’s that for economic performance?

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