The failure of Greenspan’s economics

Posted on

John Kay assures us, in an article in the FT this morning, that Alan Greenspan has argued in his new book The Map and the Territory that:

Most of our intuitive insights, when subject to the discipline of a syllogism, apparently do conform to reality.

As John Kay puts it:

Despite everything, [Greenspan] clings to the notion that valid economic policy conclusions can be deduced from a priori axioms about the nature of the economic world.

And there, in a nutshell, John Kay has summarised why we are still in an economic mess. The syllogism that underpins neoclassical economics (and in turn much of neoliberal and neoliberal economics) is firstly that people are always and only self interested (the major premise) and secondly are rational (the minor premise( form which it follows that they maximise their well-being. This is the foundation of the logic of most prevailing economic thought and almost all econometrics.

There are, however, three faults with this a priori thinking. People are a long way from being solely self interested. Secondly they are not rational. And thirdly, as a result, they probably never maximise, although they do undoubtedly compete (which is a very long way from being the same thing, as first noted (I think) be Thorstein Veblen.

This has profound consequences. When models are built on the basis of behaviour that does not exist, giving rise to policy recommendations that conflict with the reality of the human condition then stress happens.

And that's exactly what is going on now.

If you want a better syllogism this is it: firstly, people want to live harmoniously in community whilst, secondly, wanting to achieve for themselves and those they care for and so thirdly they seek to fulfil as much of their potential as is possible within the constraints imposed upon them.

That's the logic of The Courageous State. The result is a very different view of economics.