Why Economics Should Return to its Roots

Economics explains how people interact within markets to accomplish certain goals. People; not robots. And people are creatures with desires, animalistic urges that guide them into making conscious, but often unconscious, decisions. That sets them apart from robots, which act solely upon formal rules (If A, then B, etc.). But this difference between humans and robots shouldn’t have to be a problem, right? Not if economics takes into account the fact that humans are biological creatures, who (might) have got a free will; an observation which makes their actions undetermined and therefore unable to be captured in terms of laws.

It seems fair to say that we all want to increase our utility – in the broadest sense of the word. But do we always know why we want to increase our utility? Don’t we never ‘just want’ to go out, ‘just want’ to buy a new television, ‘just want’ to go on holiday? Yes we do: it seems that, sometimes, we just happen to want things: we don’t know why, we don’t have explicit motives for our desires. And if we – the people having the desires – don’t even know why we do things, how on earth could economists know, let alone capture these actions in laws? That’s only possible if you make assumptions: very limiting assumptions.

Rational choice theory is a framework used within economics to better understand social and economic behavior by means of formal modeling. But if this sense of understanding – that is possible only through formalizing humans’ behavior – is only possible by treating humans like robots, what then, on a conceptual level, is the difference between economics and artificial intelligence? Besides that the latter really works with robots and the former seems to assume to work with robots? Robots whose actions are fully predictable and explainable by a set of parameters: speed, vision, greediness etc. Or its formal economic counterpart: humans whose actions are manipulable by changing interest rates, government expenditures, taxes and other parameters that are part of the large economic machine we are all a part of. Assuming a mindless creature, following formal rules, makes it possible to capture his intentions in a formal corset. Everything should be dealt with in a formal manner: even uncertainty should be put in mathematical terms. Anything to make sure that we don’t miss out on any of the creature’s shenanigans. Even the ones that are grounded in the deep domains of irrationality.

But maybe it’s time to wake up and ask ourselves the question: have we come to forget what that we’re dealing with humans here? That the economy is not a steam engine, robot or any other mindless entity whose actions are fully explainable – let alone predictable. Have we forgotten that economics is a ‘social’ science, a science dealing with products of the human mind, related more to psychology than to mathematics?

It’s understandable that economics wants to position itself as being a ‘genuine’ science, a science that is able to objectively describe the way the world works. A science that wants to show that it is capable of capturing its findings in laws. But why should economics be dependent upon these kind of formalities in order for it to be a science? Isn’t it time for economics to stop being insecure? To realize that it’s beautiful the way it is. Why does it behave like an 18-year old girl, whining and crying about the girls who she thinks are prettier than her? Stop it economics! You’re pretty: be happy with what you are.

But this leads us to the real question: what is economics? Economics is – much like politics – a system created by the interaction between us human beings. A system that – although less explicitly than politics – is founded on the notion of morality: our ideas about what’s right and wrong. It’s no surprise that figures such as Adam Smith and Friedrich Hayek have been so influential in economics. They understood what economics was really about: economics is in the basis a philosophy of what it means to be a human being, and the fundamental rights that each one of us should have. This ethics is the starting point of their economic systems. And that’s a tradition current economists should try to continue: interweaving morality and money. Keeping an eye on the moral fundamentals underlying markets and coming up with original ideas about how to improve these markets on a moral level. So there’s plenty of work left to do for the genuine economist.

But what do you think?

Living from Habit to Habit

Everyone who has a cat knows where I am talking about: cats have that inexplicable urge to always knead a pillow before ‘deciding’ to sit down on it. Whenever I see my cat doing that, I always ask myself: What – if anything – is going on inside of his head right now? Doesn’t he realize that he can just sit down? Is he just stupid? Maybe he is. But maybe things are a little more subtle than that…

Because maybe it is just a habit: an innocent little habit, like all of us have. Like when we stand up in the morning and take a shower, eat breakfast, brush our teeth and start our day. Let’s call this ‘habit morning’. Or like another habit we have – ‘habit evening’ – that consists of getting home, eating dinner, watching television and going to bed. And what is it we do when ‘habit evening’ has ended? Exactly! We return to ‘pattern morning’ and the cycle starts all over again.

You could say that, on a higher level, our entire lives are nothing more than a string of habits. Because what did your year of 2010 look like? It probably looked something like: celebrating birthdays, mourning at funerals, enjoying Christmas and celebrating new year. And what about 2011? Pretty much the same, right?

We are smart creatures: we have big heads full of big brains. We have a neo-cortex that is bigger than that of any other animal wandering around on this earth of ours. And even though we might have animalistic urges, such as the urge to mate and the urge to avoid pain, we seem to be able to detach ourselves pretty well from these instincts. We can, if we want to, use our magnificent thinking powers to defeat the animal inside of us. But how often do we actually use these special thinking powers of ours? Are we truly acting like conscious and reflecting beings that are different from the ‘stupid rest’ of the animal kingdom? Or are we for the bigger part just living our lives on cruise-control, hardly thinking about what it is that we are doing?

We are efficient biological machines designed to use as little energy as possible. Just as we won’t travel a hundred kilometers in order to get a coke if we can just buy one in the store next door, neither will we reflect upon what we are doing if the situation doesn’t require us to do so. Only when something goes out of hand, we might feel inclined to change the manner in which we live our lives. We love being intelligent but only insofar as it helps us to live a less intelligent life.

So, given all of this: do we actually differ from cats? They have habits, we have habits. They don’t think, we don’t think. Surely: we might be able to reflect upon our lives in a manner that cats can’t (or at least don’t), but as long as we don’t use this ability of ours we aren’t that much different from cats. The only difference might be that we aren’t kneading our pillows before sitting down on them.

What do you think?