“Economic theory’s gravest mistake is its obstinate clinging to the fiction that the world is inhabited by a species of homo-economicus, although psychologists agree that this is dead wrong, that this is merely a one-dimensional caricature of real flesh and blood people.” As such, what could be an ideational foundation of microeconomics unrelated to this bloomer?
Our tastes and preferences are endogenous to the socio-economic system. Our wants, beyond our basic needs, are determined within the economy and the powerful profit-seeking corporations influence our desires in profound ways through ubiquitous and overpowering advertisement campaigns. Our priority as a society ought to be to first meet the finite basic social and physical needs for all before we indulge in luxuries. But the corporate world has reconstructed consumption culture in such a way that we seek to obtain the psychological rewards through consumption, from which the corporations can profit, rather than from other types of activities that are not monetized—enjoying nature or music, reading, family and friends. We thus lose control of ourselves, and become depressed in ever greater numbers.
On the one hand, we are incapable of being rational and of maximizing utility (satisfaction/happiness) in a coherent manner. We are guided, in the main, by our unconscious mind, by wishful thinking, faith, intuition, emotion, and are based on partial knowledge or are merely random. We also make vague guesses about probabilities. Our prefrontal cortex is not in control. Our actions are mostly guided by our genetic code, its interaction with the environment, and the environment’s effects on our brain circuits. Social environment shapes our character, our habits, our tastes, and our actions. Our consumption and its utility are governed mainly by social norms, habit, customs, and such irrational motives as status seeking, snobbishness, keeping up with Joneses, by the bandwagon effect, or herding behavior.
On the other hand, the corporations glorify the culture of money-making and people needing constant external validation through the sense of control, gained through shopping. This is not all. Corporations have extended their control over society beyond the military – industrial complex to encompass the financial sector and capture government to a greater extent than ever before. Democracy has turned into a plutocracy as economic power is concentrated among an elite oligarchy. As such, the concentration of wealth is anathema to democratic institutions.
The real-world market structure is imperfect competition. The concentration of production implies that firms retain the power to determine prices and wages, apart from manipulating consumer wants and influencing the political process so that the firms can amass further market power. Competition among monopolies and oligopolies have entirely different consequences for market outcomes than competition among price takers. There are no “just rewards” to labour, capital, managers and CEOs, in terms of their opportunity cost or the value of their contribution to the firm. There are growing wealth and income inequalities. There are also growing inequalities in the distribution of political power alongside economic power inequalities.
In light of the above rudimentary ideas about the real-world, there is a solid case for oversight, regulation and control of real-world markets so as to effectively bring about a stress-free life, an equitable distribution of income, and a high quality of life in which most people feel good about themselves and their social relationships.
All this sketchy storyline requires us to commit ourselves to rigorously study, at the introductory stage itself and in “utter honesty”, psychological ideas (Freud and Pavlov), biological ideas, political ideas and ideas of path-breaking economic Nobel laureates such as Herbert Simon, Amartya Sen, George Akerlof, Michael Spence, Joseph Stiglitz, Daniel Kahneman, Robert Shiller, Richard Thaler and the like.
We have to obtain the ability to navigate through the economic system by encountering the concepts underlying the formidable challenges of imperfect information, opportunistic behavior, heterogeneous cognitive ability, externalities, safety, nonexistent markets, transaction costs, uncertainty, sustainability, ethics, and unequal distribution of wealth and income.
Thanks to John Komlos, we can reckon with a serious presentation of such microeconomics in his book, where Ch.3 examines the nature of demand, Ch. 4 behavioural economics, Ch.5 taste makers and consumption, Ch.6 firms and imperfect competition, Ch.7 returns to the factors of production, Ch.8 the case for controlling markets and Ch.9 microeconomic applications of minimum wage, price controls and unions and countervailing power and of anti-discrimination and of redistribution as amounting to good, correct economics.
Economics that is silent about these topics is wrong economics, and students trained in such economics perpetuate troubled economies and societies through wrong economic policies.
Another book, a Marxist one, that critiques standard, mainstream microeconomics from the viewpoint of the working people is by Yates. It reviews contemporary trends in employment and unemployment, in hours of work, and in the nature of jobs. It shows how working life is being reconfigured today, and how the effects of this are masked by microeconomic theories. It uses numerous concrete examples to relate larger theoretical issues to everyday experience of the present-day economy.
In conclusion, Komlos and Yates along with Davey will demystify and debunk the introductory microeconomics that you have done, using Greg Mankiw’s books and the like. If you move on to the tougher books by Steve Keen, then you will be shattered to realize that you had also wasted precious time doing the standard intermediate microeconomic theory, using Hal Varian’s book and the like.
There is a saying that “heard melodies are sweet, unheard melodies are sweeter”. You may take this in your stride, following the World Economics Association and the International Economic Association rather than the American Economic Association.
The American Economic Association will never teach you microeconomics leading to conclusions that there is no value-free paradigm in economics or methodological individualism is clearly untenable or democracy ought to be a building block of economics or capitalism is nothing but shameless robbery. Nor will it frankly tell you why its theories are useless for achieving the United Nations’ 17 Sustainable Development goals which reflect the concerns of the people at large.
As a student of modern economics, it is high time you realize what is useful work and what is useless toil inside and outside of academic classrooms. You need to tap into all the energy and creativity of the student-rebellion against standard, conventional economics. But if you want to get the Nobel Prize, don’t do this. Do it after getting Nobel, and give me 10 percent commission at least.
Annavajhula J.C. Bose, PhD
Department of Economics, SRCC
References
1. Brian Davey. 2015. www.credoeconomics.com
2. John Komlos. 2019. Foundations of Real-World Economics: What Every Student Needs to Know. Routledge. Second Edition.
3. Michael Yates. 2004. https://monthlyreview.org/product/naming_the_system/
4. Steve Keen. 2011. Debunking Economics. Zed Books.