The Philosophy of Economics - The Invisible Hand
Thursday, September 18th, 2008Ah, the invisible hand, what a fine, dark metaphor to match these dark times. Adam Smith in The Wealth of Nations: The individual who “intends only his own gain is led by an invisible hand to promote an end which was no part of his intention.”
Wednesday’s New York Times editorial “Mr. McCain and the Economy” criticizes McCain on several fronts. 1. His claim that the economy is fundamentally sound, despite the latest cataclysms. 2. His clarification that what he meant by “fundamentally sound” was that he “believed in American workers.” and 3. His broadside that any blame that could fall fell surely on Wall Street’s “unbridled corruption and greed.”
“The crisis on Wall Street is fundamentally a failure to do the things that temper, detect and punish corruption and greed. It was a failure to police the markets, to enforce rules, to heed and sound warnings and expose questionable products and practices,” says the editorial, and with a flick of the wrist ends with a call to McCain to proffer new solutions or approaches that might correct the problems.
McCain, we’ve heard and he admits, suffers from a fundamental lack of interest in things financial (he doesn’t recall how many properties he and his wife own — eight). This is an unfortunate quality in the prospective leader of a country, especially during economic upheavals.
The invisible hand has another meaning here, too. McCain, intent on gaining the presidency is led by the invisible hand of greed in the Republican power-makers. It is no part of McCain’s intention to lead the country into financial disarray, to risk further dismantling of what was, prior to Bush’s presidency, a remarkably strong economy.
Economics is a complex subject. Even the experts don’t understand how economies really work. They are too vast, multi-faceted and irrational.
This last is an incredibly important point. Emotion, fear, mania, addiction, overoptimism all play significant roles in the way the economy heaves and rolls. The concept and model of a completely free market fails in the real world on this basis alone.
Subprime mortgages and the resulting current woes illustrate the second point about the illusion of the completely free market. A free market, a market without restraint, is free to collapse. If we want to prevent this (and who would argue that it’s not in the nation’s best interests to prevent occasional collapse of the economy) someone outside the market needs to be monitoring, reviewing and, if necessary, regulating such things as new financial instruments.
The last problem with the notion of a completely free market is the dangerous relationship with the seat of government. Large, wealthy corporations have deep pockets with which to influence government policy. And, worse yet, if agents of those corporations influence government thinking, policy and strategy (think Rove and Cheney) the power of government will exert an ultimately skewed and even destabilizing influence on the market.
This is exactly what has been happening, as the Times editorial points out: “The disconnect between work and reward has been especially acute during the Bush years, as workers’ incomes fell while corporate profits, which flow to investors and company executives, ballooned. For workers, that is a fundamental flaw in today’s economy. It is grounded in policies like a chronically inadequate minimum wage and an increasingly unprogressive tax system, for which Mr. McCain offers no alternatives.”
The free market is a nice idea, a useful model to illustrate one of the forces at work in an economy. But we should not forget that the invisible hand bends and shapes the market according to the will that wields it.
Related posts from around the Web:
Senate Democrats Discuss Bush-McCain Economic Policies - Senators Boxer, Stabenow, and Menendez discuss how the turmoil on Wall Street is a direct legacy of Bush-McCain economic policies that have failed this nation for eight years. Refusing to police lenders and neglecting to protect …
McCain’s Economic Solution: Hemorrhage More Money - … GOP nominee for his statement this morning — which they asserted was an announcement of support for $25 billion in government loans to the auto industry. So there we have it. McCain’s solution to our terrifyingly failing economy? …
McCain Follows Obama With Direct Economic Ad (VIDEO) - “You, the American workers, are the best in the world,” says McCain. “But your economic security has been put at risk by the greed of Wall Street. That’s unacceptable. My opponent’s only solutions are talk and taxes. …





Contrast this with the assertion of Frank Herbert’s son that his father didn’t finish college because he took only to the courses that interested him, forgoing required classes. Herbert worked at writing for many years before achieving success, relying on his wife’s income to support them. He submitted his landmark science fiction work — Dune — to 20 publishers before it was picked up for publication by a smallish press.
The Times reports that ‘Hillary Rosen, one of Mrs. Clinton’s most prominent women supporters, wrote on the
‘“I just don’t think [evolution is] true or it’s ever happened†… when he considers the case for evolution, Dr. McLeroy said, “it’s just not there.‒
Back in the dark ages of last November I wrote about a
Some
I’m reasonably sure that Ray Kurzweil, noted futurist, would concur.
From a philosophical perspective, an interesting aspect of all of this is that time, as we perceive it, is all in our minds. The past and the future, as we commonly conceive of them, don’t exist. All of existence rests on the current moment. Reality is transitional. Causality creates our perception of time. The predictable changing of things, the nudge of being from one moment to the next. Without this, time would be meaningless.
Philosophy requires skepticism. Without the urge to doubt or question our immediate experience we cannot understand it. To Socrates, the ultimate knowing was knowing that he knew nothing. This idea, so central to the process of finding firm conceptual ground, has been taken up again and again by philosophers. A good philosopher has to be scrupulously skeptical, particularly of his own ideas. Bad philosophers tend to be bad because they have lousy ideas or because they’re not skeptical enough –
Schopenhauer, in his World As Will And Representation, spectacularly criticizes his contemporary, Hegel, for instance, because he saw Hegel as a self-aggrandizing mystic rather than a real philosopher
As we wade on through this election year, I fear that we’re being too hard on the candidates as they make mistakes. The hypercritical election process, during which every statement is parsed and critiqued, only serves to drive the poor hopefuls toward the alluring but false embrace of purported infallibility. Don’t we want a president who, as the most important executive in the country, can feel comfortable with his or her fallibility?
Back in January I wrote about
And in
All of which brings me to thinking, curiously, about
As I’ve mentioned before
In an interview with
In Victor Frankl’s marvelous book — 
For what reads like a fluff piece,
The NY Times exhibits poor editorial judgment in publishing the piece under the chosen title. I don’t know whether the Times is diluting its editorial expertise in the move to become an up-to-date on-line news resource. And I don’t have an assiduous record of the editorial quality of the paper. But it’s my passing impression that the mismatch between titles and content is happening somewhat frequently on-line. I don’t ever recall it happening in the printed paper. The piece itself is less focused and on-point than one would expect from a top notch news source. In an Internet world overflowing with dubious content, these things matter enormously.
I’m fascinated by Ayala’s equating of evolution with an explanation for evil. Given the sketchy coverage of Ayala’s views and opinions, I’m guessing that he has much more to say on the subject. But from the little we have to work with Ayala seems to be saying that evolution lets God off the hook for being the source of evil.
It’s been nearly
What surprised me about this article was not the conclusion (since it seems to make common sense — Darwin spent many painstaking years deriving his theories from real world examples, and the results are only obvious because he abstracted them!) but the realization that anyone ever thought that real world examples could effectively impart complex abstract knowledge. It’s useful to tie abstract concepts back to real world examples, of course, but this step is tough and challenging because it requires the additional skills of distilling the pertinent information and understanding how to apply the appropriate theory.
Last week I wrote about the implications ofÂ
The studies implicate blood sugar as an important factor in restoring or maintaining self-restraint. Subjects performed better on disciplined tasks if they were allowed to replenish their blood sugar between those tasks. (If only Spitzer had had a glass of lemonade after a hard day in the legislature!)
Brooks quotes from Dorfman’s book: “Self-discipline is a form of freedom. Freedom from laziness and lethargy, freedom from expectations and demands of others, freedom from weakness and fear — and doubt.”
According to Dorfman, and supported by scientific research, it makes no difference whether we feel, in the moment, that we want to exercise self-discipline. If we act in a self-disciplined way we will increase our willpower. Just as we go to the gym to workout, whether we feel like it or not, we might be much more inclined to exercise self-discipline if we understand that it will make it easier for us to exercise more self-discipline in the future.