Steinbeck on the Crisis

I was reading John Steinbeck‘s Cannery Row last night, and I was really struck by how the following passage speaks to the forces behind our current economic predicament:

“It has always seemed strange to me,” said Doc. “The things we admire in men — kindness and generosity, openness, honesty, understanding, and feeling — are the concomitants of failure in our system. And those traits we detest — sharpness, greed, acquisitiveness, meanness, egotism, and self-interest — are the traits of success. And while men admire the quality of the first, they love the produce of the second.”

The usual cheap shot after citing a literary figure would be to argue that modern economics can’t possibly grapple with such issues. But it can. The incentives that Steinbeck describes are the incentives described in standard economic models. Agency theory is almost entirely devoted to developing mechanisms to deal with the fact that private and social interests often diverge; information economics tells us a lot about when these incentives are active; and behavioral economics tells us how people balance the opposing forces Steinbeck identifies.

Evidently, U.C. Berkeley’s Barry Eichengreen agrees, arguing that:

One interpretation, understandably popular given our current plight, is that the basic economic theory informing the actions of central bankers and regulators was fatally flawed. … But another view, considerably closer to the truth, is that the problem lay not so much with the poverty of the underlying theory as with selective reading of it — a selective reading shaped by the social milieu …

Those same traits of self-interest that Steinbeck describes shape not only the economy, but also how economists choose to represent economic theory. Here’s Eichengreen again:

consumers of economic theory, not surprisingly, tended to pick and choose those elements of that rich literature that best supported their self-serving actions. Equally reprehensibly, the producers of that theory, benefiting in ways both pecuniary and psychic, showed disturbingly little tendency to object. It is in this light that we must understand how it was that the vast majority of the economics profession remained so blissfully silent and indeed unaware of the risk of financial disaster.


Derick

The reason we're caught in this "only greed and self-interest produces anything or can make people successful, but it leads to dishonesty and causes harm to others!" is that we don't distinguish between fair, mutually beneficial self-interest and dishonest self-interest where the risk is in someone else's hands, at someone else's expense. All the benevolence in the world won't do the work that a greedy businessman can do, but that greedy businessman needs to be risking his own assets.

Imad Qureshi

My econ professor always used the word "Greedy" instead of "Rational"

AMATI NONYMUS

Justin time John

We should never flush any drop of ink that leaked from Steinbeck's Pen. Leaving nothing unnoticed he was able to describe in apt detail, detail that opens dark corners of our hopeful minds.

Thanks, Justin

A

nuria

I a recent conference, one of the participants quoted a heterodox economists - sorry, I don't remember his name - on the reason why neoclassical theory, despite having been proved wrong several times over, was (and is) still the dominant economic discourse. It's because "it makes people who are comfortable, feel comfortable" about the world and not because of its "scientific" value (this last part is my contribution)

Kevin

Steinbeck is full of economic insights. In The Pearl, he wrote:

For it is said that humans are never satisfied, that you give them one thing and they want something more. And this is said in disparagement, whereas it is one of the greatest talent the species has and one that made it superior to animals that are satisfied with what they have.

Steinbeck effectively points out that wants are unlimited and that these unlimited wants (which some say are greedy) allow progress.

roger

All the benevvolence in the world is, actually, what the world depends on. The greedy businesman would not have survived without a mother, father, or some substitute to give him - surprise surprise - free nourishment to grow him to full size. The greedy businessman is an epiphenomenon, only useful in so far as he serves the basically unselfish whole - for indeed, unselfishness, taking care of others, is the root of all human societies, was in the days of the pharaohs (the most successful human society so far) and will be when capitalism is dimly remembered. There's no other means of survival.

Matt

Surely there are two other traits that are missing, namely discipline and judgement.

Without these then you may go too far down either path - you will be too greedy, too generous etc.

Either way leads to your downfall.

bill

Makes me want to reread Cannery Row (even though I reread it only 3 years ago).

Geoff

You may want to look more towards Ayn Rand for ethic conduct of business while maintaining a free market. Keeping the crooked politicians ethics values away from our economy should be the first order of business.

Johnny E

When I was 17 (in 1967) I got a summer job on a merchant ship. The first day on the job an Able-bodied seaman was showing me the ropes. "be careful what you do because we're all in the same boat". Economists should remember that.

By the way, our merchant marine was the first industry that got outsourced in the drive to lower wages of American working people. "Flags of convenience" they called it.

Merchant mariners who fought in most of the major battles of WWII had higher casualty rates than the armed services yet they got forgotten when veterans benefits were handed out. Now they're fighting pirates. Let's remember them on May 22, Maritime Day, since they get forgotten on Memorial Day & Veteran's Day.

As he signed the GI Bill in June 1944 President Roosevelt said:

"I trust Congress will soon provide similar opportunities to members of the merchant marine who have risked their lives time and time again during war for the welfare of their country."

They're still waiting:

http://www.usmm.org/
http://www.usmm.org/urgent.html

Read more...

Eric M. Jones

I frequently acknowledge that sociopathy, payoffs and backroom deals are the only way to get big things done. My approach of trying to be a good neighbour and honest broker might get rewarded in the next world...or maybe not.

Years ago I read a tale of two college students. One student bought old cars and fixed them. He then sold them and made a profit. The other student bought old cars and paid OTHER people to fix them. It is easy to see how this works in the real world, and how the first student made friends and stood behind his work and the second student made more money, and fewer friends.

But let's not get distracted here. The economic system was not flawed...it was gamed. Finally, people lost faith in the system because of the excess of bad actors in the game. Basically they did not play fair.

The faster some people go to jail, the quicker the economic recovery will be.

TomL

If I have seen further it is only by standing on the shoulders of giants.
-- Isaac Newton.

I think Roger is onto something - namely, too many 'successful' people conveniently overlook the contributions made by many others before them, and sincerely believe they did it all by themselves.

Dan

A favorite quite of mine is from Reefer Madness by Eric Schlosser:

We have been told for years to bow down before "the market." We have placed our faith in the laws of supply and demand. What has been forgotten, or ignored, is that the market rewards only efficiency. Every other human value gets in its way....No deity that men have ever worshiped is more ruthless and more hollow than the free market unchecked...Left to its own devices, the free market always seeks a work force that is hungry, desperate, and cheap-a work force that is anything but free.

RT1

Seems you have to define the economic predicament. Nobody has enough stability is one predicament. An economy based on paper and promises is another predicament. A nation that sent it's manufacturing outside of it's borders is another predicament. An unemployable segment of the population and an underemployed educated segment of the population is another confounding factor. I don't buy that greed and self interest is the vehicle that drove us here. It's far more the fault of the cult of the individual. We've forgotten the fabric of community and it's importance to the common good. We've always had a tendency to curse or worship the wealthy. It didn't matter much if they worked hard for the money or had it handed to them on a silver platter. What did matter was how they treated people once they had the bucks. Success measured by the trail of ruined lives or success measured by the number of persons lifted up? Societies limits on the individual capacity for greed used to be regulation. Deregulation of every conceivable barrier to wholesale theft has been systematically dismantled in favor of allowing the individual to flourish with predictable results. There have been and are good business people and great corporations. It's time we started admiring them, but who's going to write a headline about a great company when Bank of America needs a few more billion of tax payer dollars. Bad news sells.

Besides, since when has economics been a hard science?
It's pretty accurate predicting yesterdays weather, but predicting the future is not their strength. The fact that most were silent in the face of the gathering storm is a testament to their sense of self preservation. "it is better to be thought a fool than to open your mouth and remove all doubt" fits here.

Read more...

VRJ

Wolfers article is quite cogent, but I take exception to the statement "The usual cheap shot after citing a literary figure would be to argue that modern economics can't possibly grapple with such issues.".

A "cheap shot" is colloquially used to indicate a barb aimed at an unsuspecting foe, or an unexpected and unfair attack. I presume he meant to say "The usual excuse after..."

Just splitting hairs..

Steve Nesich

I'm glad you're writing about this. As a culture we've internalized these "rules", such as, "Nice guys finish last." "You have to make heads roll." "Only dicks get ahead." "You have to kick butts to get things done."

This, of course, is nonsense. We've all known people of great accomplishments, in life and in the workplace, who have actually succeeded because of the way they've worked with people. They've known how to get the best from those they've worked with by showing respect, acknowledging efforts, and leading by example.

"Dicks" aren't respected. They may gain in the short run, but they pay for it down the road. They sometimes get sabotaged, or passed over or left out of plans for the future.

Competence, initiative, and diligence aren't incompatible with maintaining our goodness and humanity. In fact, they're often inseparable in the highest achievers.

Hanrod

"The deeper malady is better hid; the world is poisoned at the heart." ( Wordsworth)

ON THE MANDALA

In this universe of mortal conflict,
Exploding planets born of dying stars;
The spin and hum of worlds at nature's work.

New hungry peoples rise to interdict
The older states with trade, alliance, wars;
Egyptian, Greek; then Roman, Goth and Turk.

Tribes, faiths and even species clash; though most
Survive to bear, and then bequeath, the scar -
All specimens endangered, so to speak.

The, hapless, human form itself plays host
To micro-worlds at work, and much at war;
Germs, anti-bodies, fighting, fever-peak.

Are these the scraps of some discarded plan --
An accident not meant to see the light;
Designer's loss of interest, or dismay?

'The proper study of Mankind is Man';
While in the dark the blind imagine sight,
Our knowledge, common sense, must guide our way.

This scheme may be designed, evolved, or both,
But it most clearly spurns detail, result;
We cannot simply think what's given's good.

To care, the feckless architect seems loath;
There either is no grand design -- no fault,
Or evil planner's plan, mis-understood.

? HANROD SYSTEMS, October, 2005

Read more...

James F Traynor

We're a nasty species with little to recommend us.

RPW

Since Steinbeck's time, America has become more and more institutionalized and the institutions have gotten larger and larger. The issue is no more which individuals we like or don't like but whether individuals have any say in the matter at all. Institutions rule, and the question is, "Do American institutions serve Americans and America or only their CEOs and Owners?"

At the highest level of authority there is no difference among issues of Freedom, Discretion, Power, Rights, and Immunity from Prosecution - they are all the same. The question is whether this authority resides with average citizens and the democratic process or to institutions, their officers and owners. The greater the authority allocated to The Institution, the more The Citizen is controlled, dictated to, powerless, subjugated and libeled.

It is the duty of democratic government to ensure that American institutions operate in the interests its citizens. If it fails in this duty, then Democracy is a sham, because the power of the people only operates through the government that operates in their interests.

In the current crisis, Americans are asking for more control of institutions by government because they want to save Democracy. But as we all know if democratic government does fails in its duty to control institutions, American citizens do have alternatives. True, these alternatives are not democratic, but if Democracy is clearly not working for average Americans then they will have no choice but to support an alternative form of government.

Read more...

Bill

"The faster some people go to jail, the quicker the economic recovery will be."

If only it was that simple, we could eliminate so many societal problems. Unless one wants a real witch-hunt, one must accept that much of the bad behavior in financial markets was technically legal. So jail is not a prudent option, without its own negative repercussions for the future.

That which can be gamed, will be gamed, because there are more than enough players in the game to find the angles. Thus it will ever be, and that is why laissez-faire systems, have a tendency to run off the rails, sooner or later.

The problem isn't "some people"; we are all responsible for this mess.