The Life and Death of Economic Fairy Tales

The world is not what you think it is.

The astonishing pattern recognition engine that is your brain has leveraged years of observation, thousands of years of social evolution, and billions of years of genetic evolution to create the most amazing predictive model of the world ever constructed… but still it is not and will never be a true representation of the real world.

We are creatures of perception, living not in the real world but in an evolving map of it. 

While the gap between the real world and our model of it holds true in even our most dispassionate pursuit of natural scientific knowledge, nowhere is it more true than for the study of human systems. In particular, our understanding of something as complex as the mass of human interaction which makes up the economy is nothing more than a convenient story reflecting the current conditions of the world. We create economic fairy tales to break a complex system into easily digested chunks of metaphor. 

I do not suggest that we spin these economic fairy tales towards nefarious ends or willful ignorance, rather we believe in them for the same reason that we see faces in the martian landscape.  The human mind abhors a perceptual vacuum, and we will reach out to fill any gap of understanding with explanation. We create stories because we must.

Over the course of the 20th century, as the industrial revolution took hold and transformed human life we developed a deep belief in many such economic fairy tales, which fall all over the political spectrum. While these beliefs might have had pragmatic value in their time, changing conditions of the world mean that we must now reexamine some of our deeply held beliefs. It is time to rewrite some of our economic fairy tales or face collapse of the systems we have built on them. 

  1. The fairy tale: Growth in the economy will lead to the creation of new jobs.
    Why it’s wrong: While this may have held true for previous epochs of economic growth, there seems to be a diminishing connection between between growth in economic output and the employment of people. Continual growth in automation, robotification, and artificial intelligence will mean that more and more can get done with less and less human involvement. I cannot stress enough how much of a fundamental problem this will be for a society built around the job as the sole legitimate mechanism of wealth redistribution. more here…and here
    What it should be: Job growth should no longer be the political or economic goal.

  2. The fairy tale: Economic growth will always raise the living standard.
    Why it’s wrong: The view that economic growth will make everyone’s lives better is central to the belief in the economic system as an overall good, sometimes simplified as “economic growth raises all boats”. Given the staggering disparity in wealth going to the top 1% or 0.1% of people, there is no reason to think that economic gains could not be so disproportionately distributed as to actually make some people worse off. The economy is not a zero-sum game, in that there could be more for everyone every year that we see growth, but there is no law that dictates that all those within the social hierarchy gain equally, or gain at all. This is of particular concern if we realize that the growth of capital could potentially become decoupled from the real world. growing of its own volition independent of actual growth in servicing human need. more here…
    What it should be: We do not need absolute equality, but we should aim for equality of betterment.

  3. The fairy tale: Economic growth means destruction of the environment.
    Why it’s wrong: People on the left of the political spectrum seem to be totally dedicated to the belief that the economy is an absolute bad when it comes to the environment. A properly regulated economic system could be the best friend of the environment, innovating new means to improve efficiency and decrease environmental impact. Economic benefit means environmental destruction only as long as we allow it. more here
    What it should beWe can have economic prosperity and environmental sustainability, but unless we have both we are going to end up with neither.

  4. The fairy tale: Technological progress will allow people live happier, healthier lives.
    Why it’s wrong: There is no belief more near and dear to the optimistic futurist such as I, than the view that despite ourselves technology will allow us to live happier and healthier lives than ever before. Yes, this is one possible outcome of technological progress, but technology can just as easily be turned towards human destruction. Maybe the robots can save us, but it’s up to us to ask them to. more here…
    What it should be: Technology will serve to magnify our successes and our sins, it is up to us to choose which ones.

These are just a few examples of the types of economic fairy tales that have grown out of the industrial revolution. While the use of such explanatory models to aid in our understanding of the world is absolutely inescapable, we risk becoming fundamentalist if we attach overzealously to any one of these beliefs. We must be willing to let go of our understanding if the changing conditions of the world dictate such a change. If we refuse to change our beliefs and the intricate systems of politics, justice, and economics which we have built on top of them then we face nothing short of oblivion.

We must adapt or die. 

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