by Fred E. Foldvary, Senior Editor, 1 July 2013“Narcissism” derives from the ancient Greek myth of Narcissus, who fell in love with his image reflected in water. Excessive self-love exists in science also, such as in economics. If one is so fixated on one’s reflection that one cannot do anything but keep looking, eventually one will weaken, plunge into the water, and die.
So too narcissistic economic policy weakens economies world wide. Economic narcissism causes the troubles we see worldwide: depressions, excessive debt, high unemployment, environmental destruction, and poverty. People protest, but the way of prosperity they know not, as they are led by narcissist economists who will not escape their shells.
Most economists believe in one school of thought to the exclusion of others. The mainstream school of thought is neoclassical. Other schools include the Marxist, Austrian, Georgist, institutional, New Classical, Monetarist, Feminist, Binary, Keynesian and post-Keynesian. The unwillingness to examine and merge with other schools is unscientific and narcissistic.
There are several fields in which mainstream economics has become narcissistic:
1) Mainstream economists fail to understand the most fundamental concept in economics: the market economy. They confuse the concept of a market with today’s buying and selling bazaars. The pure market consists of voluntary human action. The concept of voluntary action implies a universal ethic that determines which acts are voluntary, hence good or neutral, which ones are socially involuntary, hence coercive and evil. Narcissist economics claims that the market fails when there is unemployment, poverty, and economic depression, not thoroughly investigating whether it is governmental interventions that are the problem. By ignoring natural moral law as expressed by the universal ethic, economists fail to grasp the ethical core of economics.
2) Neoclassical economics ignores the Austrian-school theory of capital goods. Scholarly economics has become highly mathematized, and it is convenient for the math to have one variable K for capital goods in general, in an interplay with labor L. But capital goods have different effects on the economy depending on their duration, and that duration is strongly affected by interest rates and taxes. By ignoring the heterogeneity of capital goods, neoclassical economics misses the distortions in the structure of capital goods and production caused by the manipulation of interest rates. By not taking into account this misallocation of resources, neoclassical economics misses a key element of the business cycle.
3) Neoclassical economics is in love with market failure. Mainstream theory claims that where there are uncompensated effects on others, this external effect is a market failure. Buyers of the goods are not paying the social cost of the negative externality such as pollution. If economists grasped the meaning of the pure market, they would realize that such external effects are an invasion into the property of others, in effect a subsidy in violation of market ethics. The ethics or the pure market requires compensation, after which the social cost is no longer external.
4) Neoclassical economists fail to understand collective goods. They believe there is market failure for public goods because of free riders. If the service like security is already there, the mainstream believes there is no way to make the user pay. The reason they believe this is because neoclassical economics ignores geography. Goods exist in three-dimensional space with a location, rather than in the ether that neoclassical economists believe in. The collective goods generate land rent, which provides both a source of payment and a way to measure the benefit.
5) Neoclassical economics has hidden and suppressed land and its rent. Mainstream economics either ignores land in its two-factor models of K and L, or they merge land into capital goods such as in the data on non-wage income. Many textbooks do not even have an index entry for land, and they only have “rent seeking” for rent, meaning the seeking of governmental subsidies, forgetting the origin of “economic rent” in the income from land. By leaving out land, neoclassical economics misses the concept of public revenue from land rent, as well as the important role of real estate in the business cycle.
6) Neoclassical economics is seemingly willfully ignorant on the business cycle. The term “business cycle” is misleading, because the boom and bust are not caused by business, but by governmental intervention. Massive subsidies to real estate, including cheap credit, cause escalating speculative land prices and the excessive construction of capital goods of long duration, namely buildings. The major cause of boom and bust for 200 years has been subsidies to land value. Neoclassical economics misses this both by ignoring land value and by ignoring the structure of capital goods.
Psychological narcissism includes self-focus, a lack of awareness, magical thinking, arrogance, and vanity. In most colleges, students of economics become indoctrinated into the mainstream beliefs, and they fail to implement lateral reasoning -- an examination of premises to determine whether they have left something out.
Most human beings are deficient in lateral reasoning -- they are not even that great in deductive and inductive reasoning. But scholarly economists should be aware of this gap: they know that there exist heterodox schools of thought, but they don’t bother to examine them. That hubris results in economic narcissism.
-- Fred Foldvary
Copyright 2010 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.
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