Reconstructing Equilibrium

In America efficiency is king and the elite speak the language of utility.  But to many of us economics is Thanksgiving and Black Friday; and these two days in November seem to serve as a fruitful analogy for trying to break through the bipolar psyche of American political economics.
Thanksgiving Thursday families in Southern Colorado and around the country come together to share a meal, to break bread, and to take care of one another.  Communities sponsor food drives and soup kitchens provide food and shelter for less fortunate families.  This is the intrinsic welfare function in our community, the deeply held American value for equitable distribution of resources among free people.

Yet when the wee hours of Friday come around the entire consciousness changes and the same people volunteering at the soup kitchen become frenzied consumers, hedonistic utilitarians, unafraid to trample over the same people who the day before they selflessly donated their time to help, all for the chance at a cheap commodity.  This is the intrinsic American will to efficiency and competition, the microeconomic utility function being constructed in front of our eyes.

But when the transition from welfare to efficiency is made in such an unconscious manner with respect to the assumptions and implications of our ideologies, it’s no wonder why we find ourselves so violently entangled in a political discourse where one side paints the other as viral and contagious, or worse as a socialist.

But the reality of the situation is that the cure to an economic breakdown lies in a reconciliation of the sides and a consciousness that while the sides may seem separate, even alien to one another, that they are one, connected, and codependent.  Like a therapist should treat a patient with a split personality, the cure lies in unifying the separate characters in the individual by bringing to conscious the common thread.  Like it about ourselves or not, welfare and efficiency are permanent characters imprinted into the American conscience.

So how do we deal with this structural and ideological complex as bricks in the foundation?  Well, serious economist’s will tell us it is naïve to reduce the economic debate of our time to a battle between capitalism and socialism; and a pragmatic question is – How do we feel about the benefits of redistribution or allocation of resources and opportunity, between the rich and the poor, as well as the strengthening of welfare versus losses in terms of efficiency?

October 15, 2012, The Royal Swedish Academy of Sciences decided to award a Nobel Prize in Economics to Alvin E. Roth of Harvard University and Lloyd S. Shapley of University of California, Los Angeles for “The Theory of Stable Allocations and The Practice of Market Design”.

Roth and Shapley’s work in market design and matching theory focuses on finding the most efficient way to match parties in transactions.

In the words of the Royal Swedish Academy of Science’s “Information for the Public”, or in other words, language for the rest of us without PhD’s in economics:

“Economists study how societies allocate resources. Some allocation problems are solved by the price system: high wages attract workers into a particular occupation, and high energy prices induce consumers to conserve energy.  In many instances, however, using the price system would encounter legal and ethical objections. Consider, for instance, the allocation of public-school places to children, or the allocation of human organs to patients who need transplants.  Furthermore, there are many markets where the price system operates but the traditional assumption of perfect competition is not even approximately satisfied. In particular, many goods are indivisible and heterogeneous, whereby the market for each type of good becomes very thin.

How these thin markets allocate resources depends on the institutions that govern transactions.

This year’s prizewinning work encompasses a theoretical framework for analyzing resource allocation, as well as empirical studies and actual redesign of real-world institutions such as labor-market clearinghouses and school admissions procedures.”

Aside from the notion that there could be an algorithm or mathematical formula that could aid in efficient and fair allocation of resources, jobs, education, and even organs to the people who need them the most, what is most striking about this economic theory is how impenetrable the language is.  And herein lies one of the most fundamental problems in economics today, only individuals specialized in economics can interpret economic ideas more nuanced than the blanket concepts of capitalism and socialism.  Because of this, the ruling consciousness in American political economics is derived from partisan rhetoric, rather than science.

Granted, an extraterrestrial that just landed on earth with the prerogative of learning all it could about the Earth’s economic systems would be right to read of Adam Smith and John Locke, but, would it be wrong to learn the economics of John Maynard Keynes and Mahatma Gandhi?

I think most people would agree that our alien intellectual would do well to study Milton Freedman as well as Karl Marx.

However, if you are a human being living in 2012 America you will be as fortunate discussing the benefits of resource or opportunity redistribution in the public sphere as scientists discussing a sun-centered galaxy in the 16th century.  And the effect of this American Political Economic Orthodoxy is that the majority of Americans never learn the language of economics or how to think about the stresses facing our system.  So very real issues like the arrested poverty line and stagflation is not confronted in public discourse.  The concept of expanding leisure at the expense luxury is never discussed politics.  And forward-looking economic models like commodity egalitarianism are dismissed with haste.

Gandhi said, “In well ordered society the securing of one’s livelihood should be, and is, found to be the easiest thing in the world.”  I believe you would have difficulty finding an economist from any school of thought who would disagree with this claim.

Economics is the language of the future and knowledge of it is what will truly set us free and give us back our destiny. 

By Matt Ramirez

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