Animal Spirits make Economics seem a little less crazy

I have a terrible relationship with money. I am a person who is highly affected by the animal spirits, so it is easy for me to see that they exist.  I lack confidence in markets and capitalism in general.  The bad faith and corruption demonstrated in the 3 crises outlined our reading, all of which have occurred in my adult lifetime certainly play a role, as do stories I tell myself about how the world works, who gets and who pays. I’ve never had much, or earned much, or expected much financially.   I know the illusion of money exists because I am completely shocked by the large change in the rate the tooth fairy pays and neither very aware of nor appalled by the loss of buying power of wages over my lifetime.  This is hard territory for me. I avoid it with a slippery instinct that says “Don’t look at that.  It’s ugly.”  My corporate lawyer cousin took me under wing once in the middle of a heartfelt what-are-you-going-to-do-with-your-life conversation.  She said, “What’s ’a matter? Don’t you like money?”

I am skeptical of conventional Economic theories because I find their assumptions so oversimplified as to make the models feel mostly irrelevant. People are rational…(nope)  There is perfect transparency of information….(nope) Ceteris parabus ….Nope. All other things are not ever equal, and when we pretend that they even could be,…well….  These circumstances are so far from real.  What useful information could possibly come from such oversimplified models?  It reminds me of the old joke about a biologist, a chemist and a physicist theorizing about maximizing milk production. After the story winds through its first 2 models, when the physicists’ turn begins, he says, “First, assume a perfectly spherical cow….”

The idea of animal spirits in economics appeals to me.  Our models can get a little more messy, a little more real.  What people think is going to happen matters, (confidence).  Others will cheat and we know it. Some information is not shared. Whether we think anyone will be caught or punished matters (corruption and bad faith).  We have stories (including oversimplified economic models) that shape our reality, our values, and our sense of the possible, the probable, and what is right.  Our stories inspire us to make choices based on more than simple rational self-interest.

You measure what you care about (and vice versa). You get more of what you measure. I contend that we frequently measure the wrong things in the wrong ways.
GDP as a proxy for standard of living doesn’t work. For me, it falls apart right here in the details:  The more people who have cancer, and the more expensive the treatment, the higher the GDP.  That is certainly not indicative of any increase in standard of living.

So what do we measure instead?  Believe it or not, in spite of this cynical rant, I am an optimist. I am looking for better ways to model and to talk about how people make choices and what matters   and to whom.  I’m looking forward to exploring some new perspectives and learning some new language in this course.  Maybe it will make it a little easier for me to look into dark and neglected corner.

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