Sunday, October 29, 2006

Human Beings Are Ingrate Variables

I’ve said this several times probably (say, about a million times), but journalists saying it in major US newspapers like The Washington Post is sufficiently rare for me to feel like underlining it.

Human beings make poor variables in all the wise men’s economical equations. They just won’t behave the way they’re supposed to, well not for long anyway. They don’t understand that as long as mean values are okay, they should feel okay. They don’t get it that having ups and downs, peaks and pits is just part of the economical process, and that all that matters is that it just evens out in the end, or shows a global rise.

In his editorial today, Mr Hacker bravely decided to deconstruct the myths and fables economical gurus feed themselves everyday. Economics is well and good. Clean, cool. Cold.


It’s laws and equations and theory. All well and good when you think in terms of physics, mechanics, chemistry and astrophysics or quantum mechanics, but completely invalid when you apply it to life, to human life and reality. Why? Because people are sentient, because people live, because people need to pay their bills on time, need to buy food, clothing, housing, need to pay for their kids’ education, need to pay hospital bills, and so on.

People are not the equivalent of money left dormant on a banking account. They cannot just be left there when the economical conjecture is bad, to be reinvested in this or that venture when the time is right again. People cannot stop paying their bills when they’re in a “bad year”, and put off paying them for whenever a “good year” will happen again (that is, if it happens at all).

People just cannot put their lives on hold during “bad years” and revive when “good years” come again.

Economy is about management, flexibility and the ability to put things on hold, to make them move in whatever direction you feel the market hints at, and fast.

Human life is about building stability, about having homes, friends, family, about enjoying oneself, about realizing oneself. Human life cannot be equated, or put in a parallel with economy. People need stability to build something. Exactly the opposite of what the holy laws of economy force upon us.

And yet, the wise men of economy, those blessed priests of the holy doctrine do not understand this. They write books and whine about humanity’s ingratitude. I could almost weep for their plight. Poor men, we’re such stupid creatures, we people. An example? Why certainly:

(…)Some analysts have described current voter angst as a hangover of economic success. "Americans have developed perfectionist standards," economics columnist Robert J. Samuelson has argued. "We expect total prosperity and are disappointed by anything less." And conservative pundit George Will recently decried the nation's "economic hypochondria" -- an entitlement mentality characterized by a low threshold for economic pain.

Nice, isn’t it? I’m sure Mr Will never found himself fired on the spot one week from having to pay his rent, and the interests on the new car he had bought. I’m sure Mr Will didn’t have to worry about renewing the wardrobe of his kids, and sending the eldest to a good university.

I hate people who lord it over the rest of us like that, so detached from a normal person’s everyday life that the “judgment” they make would be laughable if only opinions like these weren’t taken seriously by the powers-that-be and those who decide how countries are run, and who refuse to put barriers and rules to hold the hydra called economy in check.

Fortunately some people are slowly starting to get their heads out of their asses, and to take a good, long look at reality:

(…)In a path-breaking recent paper, "The Evolution of Top Incomes: A Historical and International Perspective," Thomas Piketty of Écoles Normales Supérieure in Paris and Emmanuel Saez of the University of California at Berkeley have shown that the share of national income held by the richest 1 percent of Americans -- stable at about 32 percent throughout the middle decades of the 20th century -- began to rise sharply in the late 1970s and by 2002 had surpassed 40 percent. In the past few years, most income gains have gone to people at the very top of the income ladder, with middle-class Americans seeing only a small boost in their economic standing.

(…)Princeton economist Henry Farber, in his article "What Do We Know About Job Loss in the United States?" has found that the likelihood that a worker will lose a job over a three-year period has been rising -- and is now about as high as it was in the early 1980s, which saw the worst economic downturn since the Great Depression.

To conclude, I’ll leave you with this bit of wisdom from Mr Hacker. Read it to the end, it’s very instructive, and it says a lot on how disconnected from reality economy gurus are. And thus, how dangerous they are when heeded by those in power:
(…)In my own research using the Panel Study of Income Dynamics -- a survey that has traced a large sample of Americans over time -- I've found that family incomes have become much more unstable since the 1970s; the gap between our income in a good year and our income in a bad year has expanded. Increasingly, it seems, Americans are living on a financial roller coaster.
Of course, roller coasters go up as well as down, so it's tempting to think that the net effect of economic instability is a wash. But instability causes hardship even when the "average" experience stays constant. In their seminal 1979 article "Prospect Theory: An Analysis of Decisions Under Risk," psychologists Daniel Kahneman and Amos Tversky showed that people dislike losing things they already have much more than they like gaining things they don't have -- a phenomenon known as "loss aversion." As a result, losses in income are psychologically difficult even when followed by equal or even larger gains. And, of course, it's on those downward trips that people lose their houses, their jobs, their retirement savings and other staples of middle-class life.

Thank you, Mr Hacker, for stating what is obvious to anyone with a life and not millions of dollars or Euros stored safely somewhere to parry the “bad years”.

No comments: