American Amnesia?

That’s the title of a book I am looking forward to reading over the summer. It’s by Jacob Hacker and Paul Pierson, and I just read a summary essay they published called: “Making America Great Again – The Case for the Mixed Economy”. Let’s overlook the loaded content of the first part of the essay title, and focus, instead, on the subtitle: The case for the mixed economy.

Now there’s a good subject for economics.

The essay is a long paean to the role of government in a healthy growing economy. There are all the usual references to market ‘failures’ of various sorts, all of which the authors tell us only a strong government can resolve or offset.

It’s the kind of argument that you and I are very familiar with. We are, after all, steeped in the dogma of market ‘failures’. Markets, we know, ‘fail’ all the time. The sources of ‘failure’ are many and common. Indeed they are so many and so common that we ought, were we empirically inclined, to expect markets to ‘fail’ more often than not.

But economics is not empirically inclined.

It is theoretically inclined.

And in its core theories markets are pristine and devoid of ‘failure’. They are so pure, perfect, and fully functional, that many economists seem to forget that those theoretical markets actually do not exist. Nor will they ever exist. They are simply an ideal form against which we compare real markets. We use the pure imaginary form as a sort of stereotype or caricature so we can locate the ailments of the real markets we find around us.

So what do we mean by ‘failure’ in this context? What is an ‘ailment’ that would need correcting?

That’s where economics goes off track. Its obsession with markets and the technology of allocation within a perfect market leads it wildly astray. So far astray that economists are forced to use the word ‘failure’ when they actually mean entirely normal. Markets do not fail in the way economists use the word failure, so much as function normally albeit it in wonky and inefficient ways. The word failure loses all useful meaning if it is applied as a label to put on something we ought expect to see as the usual state of affairs.

In medicine we look at the common cold or a bout of the flu as aberrations and expect our bodies to return to normal once the illnesses have run their course. In this regard the illness is a ‘failure’ of sorts, and the cure signals a return to health. We are sensible to look at health in this way because both conditions: the healthy version and the sick version both exist in reality. The contrast is thus valid.

In economics we don’t do this. Our comparison skips across a very significant boundary: one one side is the wonky version suited in reality; and on the other is the perfect version situated in our imaginations. The real instance is a not a ‘failed’ version of the perfect because they cannot and do not co-exist in reality. They occupy parallel worlds. They have no intersection. They certainly differ: their mechanics and outcomes can be contrasted; and their efficiency – whatever we mean by that word – may be different, but in one case the mechanics, outcomes, and efficiency is real, whereas in the other it is entirely made up. So while we can imagine what a perfect market might be like, we can never experience it. And while real markets may be messy and contrast rather poorly against the imagined ones they are not failures because of that contrast, they are simply real.

I will grant that theorizing about perfection makes for a great deal of fun, and that examining it in our imaginations is a useful, if limited, exercise – after all that way we can imagine how to create replicas of perfection here in reality, but we can only do that if the conditions of our imaginations are available here in reality. Which they are not. Which is why we have to resort to our imaginations to explore perfection. Whenever we want to export from the imagined world into the real world we immediately lose perfection. Hey, that’s life, it isn’t failure.

Anyway I now I am running on about this. Why?

Because it annoys me that economists have so limited their interest in economies to the tight and restricted world of imaginary markets that they are no longer the source of interesting discussions about the role of government – or any other institutions – in an actual economy. Within the suffocating ambit of economics purified markets rein supreme. Elsewhere a more realistic, vibrant, and healthy vision of reality exists where discussions about the role of government can go on unhindered by preconceived, and frankly absurdly fake, imaginary comparisons with unattainable purity.

I should note that both Hacker and Pierson of “American Amnesia” are poli-sci professors. Which is why, I suppose, they can talk about the real economy with such interest and authority.

It’s just a shame that most economics professors can’t.