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.
No one at all is stupid enough to think that humans are solely self-interested. It is, even in Smith’s version, enlightened self-interest that counts. We cannot explain, for example, the adoption of unrelated children without assuming some motivation beyond pure self-interest. The second assumption, that humans are rational: well, do we think that it would be better if we based our worldview on the idea that humans are all mad and irrational? But the rationality assumption isn’t even that human beings are entirely rational. For a start there’s vast areas of neoclassical economics exploring where we know that people are not so: hyperbolic discounting anyone? We also don’t assume that people maximise: we do think that people have a pretty good go at getting the best deal they can but we also know very well that most people, most of the time, satisfact. That’s why most of us are shagging the people we are rather than holding out for Scarlett Johannson or George Clooney (to taste).
But even if we leave all of that aside and take Ritchie’s arguments at their face value.
“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.”
How the hell is that different from the idea that people maximise rationally?