Do not think about, write about or deal with human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.
Wherein we see academics criticizing that which they don’t understand and, certainly, have never experienced.
Peter Foster National Post
Akerlof and Shiller fit academic obsession with fundamental rottenness of Western capitalist society, and of the U.S. in particular
One wonders if Nobel economist Robert Shiller got down on all fours to establish that his cat’s food wasn’t really “gourmet.” If he did, it wouldn’t have demonstrated a much greater level of anti-market derangement than pervades the rest of his book Phishing for Phools, which he co-authored with another Nobel laureate, George Akerlof.
Some economists receiving the Nobel are good, some are just, well. academics who love government in all its manifestations. Obama got the Nobel for Peace because the committee “wanted to support him.” not because of accomplishments.
Akerlof, who teaches at Georgetown, and Shiller, who lectures at Yale, are both obsessive students of “market failure.” They are here less economists than culture warriors. While they claim to appreciate the wonders of capitalism, they itch to prove that market society is fundamentally corrupt. This is obvious from the book’s title, which equates marketing with “phishing,” a term for Internet criminality.
The book might be taken as just another tedious example of lefty economists attempting to rationalize their deep-rooted hatreds, but Akerlof — who is married to U.S. Federal reserve head Janet yellen — was supported in writing it by the Canadian Institute for Advanced research, CIFAr, which in 2012 was pledged $25 million by the Harper government. Last week, Akerlof delivered an annual lecture, named for former bank of Canada Governor David Dodge, at CIFAr in Toronto. What were the Conservatives thinking? Less “advanced” research can hardly be imagined.
The authors are great fans of “behavioural economics,” which seeks to justify more government intervention on the basis that we don’t really know what’s good for us. but they do. Their colleague Richard Thaler, one of the founders of behavioural economics, thinks the typical human is like “Homer [Simpson] economicus,” and thus desperately needs a bureaucratic guardian angel on call 24/7. Akerlof and Shiller claim that people are more like monkeys (which have been observed to have primitive trading instincts). We thus have “monkeyon-our-shoulder” tastes, from which the Guardians need to save us. And our cats too. When Shiller tasted his cat’s food, “The advertised flavours that sound attractive to humans — turkey, tuna, duck, and lamb — did not seem to be there at all.” The authors also condemn Cinnabon — whose bake shops waft fatty and sugary aromas through airports, where consumer resistance is low.
In the wake of the Paris terrorist attacks, cat food labelling and Cinnabon marketing should surely come well down our list of concerns, except insofar as they point to an academic obsession with the fundamental rottenness of Western capitalist society, and of the U.S. in particular.
According to Phishing, we are exploited at every turn: when we join a health club; at birthdays, deaths and funerals; when we buy houses and cars; by big Pharma and big Phood; by tobacco and liquor companies; by Wall Street; by Facebook; by airlines’ exploitation of our desire for “elite” status. did you know that even that old song’s “Puppy in the window” was a devious enticement to spend?
Akerlof and Shiller claim to have cast-iron proof for their thesis. It’s all Adam Smith’s fault. His concept of the Invisible Hand has led to a “standard economics” that celebrates greed and ignores market manipulation; that preaches that markets are perfect and economic actors purely rational. “If business people behave in the purely selfish and self-serving way that economic theory assumes,” they write, “our free-market system tends to spawn manipulation and deception.”
But which business person derives his practices from economic theory?
What Akerlof and Shiller are actually condemning is human nature. moreover, once we abandon caveat emptor for “Let the government beware for us” we are on a slippery slope towards losing not just choice but freedom. Such concerns are dismissed by claiming that those who warn against the moral hazards involved in government “would also tell us to do away with fire departments, because there would then be no fires since people would be more careful.”
Adam Smith in fact never suggested that markets were, or could be, perfect. He wrote of “the higgling and bargaining of the market, according to that sort of rough equality which, though not exact, is sufficient for carrying on the business of common life.” He was also an avid student of human irrationality which, he noted, was infinitely more dangerous when it came to politics and religion than to shenanigans by tradesmen, of which he was well aware. He pointed out that the market controls such shenanigans, not least by rewarding a reputation for honesty, although the law is needed to protect us from fraudsters. Akerlof and Shiller’s answer to the value of reputation is to claim that it is accumulated so that it can be “mined” to cheat people.
They assert that the Invisible Hand’s validity depends on “Pareto Optimality” — where the market is in such perfect equilibrium that nobody can gain without somebody else losing. but this is an abstruse “proof” that has little to do with the real world. meanwhile Vilfredo Pareto noted — much more significantly — that it was impossible to convince socialists that they were wrong because their belief was religious.
Akerlof and Shiller write “There is a bias toward seeing what is in our interest; a bias against seeing what is against it.” but it never seems to occur to them that this might apply to politicians, bureaucrats and policy wonks, and that behavioural economics might be used as just another rationalization for intervention.
For example, the now-ritual claim that people “undersave” for retirement provides cover for the looting involved in Kathleen Wynne’s proposed new Ontario pension plan. A more fundamental flaw in regulation is seen in the monstrous corruption of the process involved in President Obama’s rejection of the Keystone XL pipeline. related to which, the authors make no mention of arguably the greatest regulatory phishing expedition in history, climate change, whose pretensions are shortly to be put on display again in the shadow of those terrible terrorist attacks.
Akerlof and Shiller instead reject regulatory self-interest. regulators are “heroes.” Those who point to regulatory dangers are said to want no regulation at all, and to hold a position analogous to one that would “imply that because spouses, children, and friends are often troublesome, we should never get married, never become parents, and have no friends.”
Free marketers want no fire stations, and now no families or friends either!
Ultimately, Akerlof and Shiller make themselves look like phools. Phishingthink is ultimately a glaring example of that psychological phenomenon known as “Looking at a doughnut and seeing only the hole.” meanwhile they make unconsciously hilarious references to examples of their “new” brand of nanny statism. When it comes to the sins of Cinnabon, for example, they note, “Of course, the information about calories is there, but it isn’t easy to find.” Perhaps Cinnabon should be forced to replace its name and logo with the simple word “death.”
If an academic has an IQ above that of a doorknob and spends a year or two in a government bureaucracy, I find it difficult to believe they would still support government intervention in anything.
Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Power Teaching: How to Find Someone to Teach Your Child when the Education System has Failed.”
Cui Bono–Cherchez les Contingencies