The Philosophy of Economics - The Invisible Hand
Thursday, September 18th, 2008Ah, the invisible hand, what a fine, dark metaphor to match these dark times. Adam Smith in The Wealth of Nations: The individual who “intends only his own gain is led by an invisible hand to promote an end which was no part of his intention.”
Wednesday’s New York Times editorial “Mr. McCain and the Economy” criticizes McCain on several fronts. 1. His claim that the economy is fundamentally sound, despite the latest cataclysms. 2. His clarification that what he meant by “fundamentally sound” was that he “believed in American workers.” and 3. His broadside that any blame that could fall fell surely on Wall Street’s “unbridled corruption and greed.”
“The crisis on Wall Street is fundamentally a failure to do the things that temper, detect and punish corruption and greed. It was a failure to police the markets, to enforce rules, to heed and sound warnings and expose questionable products and practices,” says the editorial, and with a flick of the wrist ends with a call to McCain to proffer new solutions or approaches that might correct the problems.
McCain, we’ve heard and he admits, suffers from a fundamental lack of interest in things financial (he doesn’t recall how many properties he and his wife own — eight). This is an unfortunate quality in the prospective leader of a country, especially during economic upheavals.
The invisible hand has another meaning here, too. McCain, intent on gaining the presidency is led by the invisible hand of greed in the Republican power-makers. It is no part of McCain’s intention to lead the country into financial disarray, to risk further dismantling of what was, prior to Bush’s presidency, a remarkably strong economy.
Economics is a complex subject. Even the experts don’t understand how economies really work. They are too vast, multi-faceted and irrational.
This last is an incredibly important point. Emotion, fear, mania, addiction, overoptimism all play significant roles in the way the economy heaves and rolls. The concept and model of a completely free market fails in the real world on this basis alone.
Subprime mortgages and the resulting current woes illustrate the second point about the illusion of the completely free market. A free market, a market without restraint, is free to collapse. If we want to prevent this (and who would argue that it’s not in the nation’s best interests to prevent occasional collapse of the economy) someone outside the market needs to be monitoring, reviewing and, if necessary, regulating such things as new financial instruments.
The last problem with the notion of a completely free market is the dangerous relationship with the seat of government. Large, wealthy corporations have deep pockets with which to influence government policy. And, worse yet, if agents of those corporations influence government thinking, policy and strategy (think Rove and Cheney) the power of government will exert an ultimately skewed and even destabilizing influence on the market.
This is exactly what has been happening, as the Times editorial points out: “The disconnect between work and reward has been especially acute during the Bush years, as workers’ incomes fell while corporate profits, which flow to investors and company executives, ballooned. For workers, that is a fundamental flaw in today’s economy. It is grounded in policies like a chronically inadequate minimum wage and an increasingly unprogressive tax system, for which Mr. McCain offers no alternatives.”
The free market is a nice idea, a useful model to illustrate one of the forces at work in an economy. But we should not forget that the invisible hand bends and shapes the market according to the will that wields it.
Related posts from around the Web:
Senate Democrats Discuss Bush-McCain Economic Policies - Senators Boxer, Stabenow, and Menendez discuss how the turmoil on Wall Street is a direct legacy of Bush-McCain economic policies that have failed this nation for eight years. Refusing to police lenders and neglecting to protect …
McCain’s Economic Solution: Hemorrhage More Money - … GOP nominee for his statement this morning — which they asserted was an announcement of support for $25 billion in government loans to the auto industry. So there we have it. McCain’s solution to our terrifyingly failing economy? …
McCain Follows Obama With Direct Economic Ad (VIDEO) - “You, the American workers, are the best in the world,” says McCain. “But your economic security has been put at risk by the greed of Wall Street. That’s unacceptable. My opponent’s only solutions are talk and taxes. …






This is the best picture, make that the only picture I could find of
But then the Dynamos are a Texas team, no matter that Bush is in the White House, and no matter that while he was receiving the Dynamos
As a young man George Bush was a screw up. He excelled only at failure as far as we can tell. But Bush too made a series of choices. He chose to sober up. He chose to go into politics. And he chose to commit himself to religious faith as an influence and guide, something bigger than himself.
Barack Obama showed up when Ted Kennedy couldn’t (because of his brain tumor) to make the commencement address at Wesleyan University. Obama took the opportunity to urge the graduating class to consider the call of public service.
At the pinnacle of his rhetorical powers, Bush exhorted the Furman graduating class to adopt a “culture of responsibility” avoiding the inevitably un-fulfilling temptations of “alcohol, drugs and promiscuity.” (A bit late for that advice probably, Mr. President.)
This week
Philosophy requires skepticism. Without the urge to doubt or question our immediate experience we cannot understand it. To Socrates, the ultimate knowing was knowing that he knew nothing. This idea, so central to the process of finding firm conceptual ground, has been taken up again and again by philosophers. A good philosopher has to be scrupulously skeptical, particularly of his own ideas. Bad philosophers tend to be bad because they have lousy ideas or because they’re not skeptical enough –
Schopenhauer, in his World As Will And Representation, spectacularly criticizes his contemporary, Hegel, for instance, because he saw Hegel as a self-aggrandizing mystic rather than a real philosopher
As we wade on through this election year, I fear that we’re being too hard on the candidates as they make mistakes. The hypercritical election process, during which every statement is parsed and critiqued, only serves to drive the poor hopefuls toward the alluring but false embrace of purported infallibility. Don’t we want a president who, as the most important executive in the country, can feel comfortable with his or her fallibility?
Back in January I wrote about
And in
All of which brings me to thinking, curiously, about
A
Through the seventies, eighties, and nineties, when the Provisional IRA (the IRA) carried out apparently endless campaigns of violence against other Irish citizens, the British army, and British citizens, there seemed to be no way to reach a peaceable conclusion. For a very long time, the British trotted out the line that they wouldn’t have anything to do with terrorists. And what happened in the end? In 2005, after much discussion and compromise on both sides, the IRA renounced violence. The political wing of the IRA has been integrated into Irish politics.
But here we have the really difficult question, do names matter, philosophically speaking. Psychologically, they clearly do. But if we can narrow a concept and label it have we achieved anything more or less than narrowing a concept and labeling it?
The
And slowly but surely
As we’ve seen with the Catholic church in recent years, the infallible have a lot to learn. Errors of national ego punctuate the history of civilization like buckshot. The only thing that can save us from even worse transgressions and further isolation is a healthy dose of humility.
It’s interesting that
George Bush (son of a president, connected, wealthy, ivy league educated) subverts elitism by presenting himself as a common man
Plato and Aristotle may have approved of Obama’s unfortunate remarks, but as much as us elitists might want to impose our concepts on others, leadership and government can’t be successfully executed without an appreciation and respect for both. Too much of one or the other results in missteps.
After reading
And to mark the fifth anniversary of the invasion of Iraq, President George
Consciousness achieved evolutionary success because it allowed us to understand events and act accordingly through an abstract perception of the world around us. The very foundation of conscious thought is the manipulation of ideas. Ideas, by definition, simplify the infinite variations that occur in the real world by lumping things together into useful categories. If one were to measure the height, density and hue of cloud coverage and the time variation of precipitation, for instance, one would quickly conclude that no two rainy days are exactly alike. But the concept “rainy day” is sufficient to cover all of these variations and convey the idea of an abstract rainy day.
Ideology is a form of categorization. We lump together into a convenient bucket a whole set of related concepts about our philosophy on life or politics or whatever. And, even better, the bucket has a whole set of rules about what goes in there (sometimes these are a little vague or personal, but for the most part they’re pretty solid). If we’re a liberal, we oppose the war in Iraq, support some manner of gun control, abhor Repulican attempts to dismantle Roe vs. Wade, desire more government investment in healthcare… etc., etc.