The Cosmology of Economics

I’ve actually met a cosmologist. She was a lively black-haired, blue-eyed lass from Ireland. We were sitting on Fort Cronkhite beach in the Marin Headlands with a group from a non-profit organization dedicated to preservation of the world’s oceans. She was studying for her PhD in cosmology and gave quite a talk on it to those near her.

What is cosmology? I gathered that it is the study of how the universe came into being and continues on. Believe me, cosmology is never a word you’ll hear spoken by an economist. But for sure, there is a religious cosmology underlying economics. If you look at the cosmology of economics, you’ll see that the two branches of modern economics and the two political parties in this country have much in common with each other, while neither one really has “the answer”.

Conservative economics

This branch of economics goes back to Adam Smith, the political economist from a group of philosophers in Edinburgh, Scotland who promoted a movement called the Scottish Enlightenment. Smith was interested in the rational and irrational aspects of human nature. He also published a classic book on economics, The Wealth of Nations in the year that the United States was born.

Smith’s cosmology is basically Protestantism. The first part of the Protestant Bible, the Old Testament, shows us a “father” god who talks to his chosen people via unusual natural phenomena, e.g., a burning bush or a sea that parts in the middle. There’s no mistaking this higher power’s message to mankind.

But by 1776 among the philosophers who believed in a principle called “natural law“, such instances of divine intervention had to be toned down to appeal to those who believed in scientific rationalism. What Smith claims to have seen, or more precisely, felt on an intuitive level, is an “invisible hand.” This unseen hand arranged human affairs for the best possible outcome for everyone if each person did what was best for themselves.

Is this idea insane? Not really. How many of us have never felt something we call “being in the groove” or “on the right track”? Christianity too references something called a “Path” or “The Way” that Jesus believed his life exemplified for his followers. Eastern religions, such as Hinduism and Buddhism, use the phrases “right living” and “right livelihood” to indicate a similar idea.

From this feeling of all things working out for the best, expressed so well by Smith, comes the belief that the Republican Party has in the ability of the “free market” to regulate things the best way for the good of all. But what about events like the ones Ken Burn’s documents in his PBS “Dustbowl Series” about farmers who moved West around the time of the Great Depression in the US?

The more the white settlers in Oklahoma and Texas pursued their dream of wealth while unaware of the consequences of ploughing up the prairies of America or the folly of selling more wheat in the commodities market while wheat prices were dropping from over-supply, the closer those settlers all moved toward the utter destruction of their land and themselves.

What about all the failures of the free market, the “bubbles” we can see throughout the history of economies around the world? What are we missing?

Human fallibility and  free will

Judeo-Christian tradition also suggests, in the famous “Garden of Eden” story from the Book of Genisis, that the nature of human beings is that of fallibility. Adam and Eve fell from “grace” in the garden. They weren’t perfect. They were given free will, and they made a bad choice. They were flawed beings.

No one seems to connect the notion of human fallibility with the idea of a free market, do they? In fact, they do. Since Smith’s time, a lot has been made of the issue of “freedom” in American politics. This is the freedom of people to make their own choices –  good or bad. There is also a widespread corollary belief among Republicans that poor people are poor because they made bad choices, bad choices they should have known better than to make.

But the pursuit of wealth by hard-working farmers in Texas and Oklahoma clearly wasn’t a choice that the farmers knew better than to make! It was based on the same naive belief in an invisible hand that would “fix things” no matter what people in the market do. This is the same belief that investment bankers obviously think will make them all rich with no negative consequences.

The fact is human beings don’t know the consequences of all that we do. Nor can we assume that an invisible hand will always work out for the best when fallible human beings are making mistakes. We can count on some or possibly even many people to be on the wrong “path” or engaging in “wrong living” on occasion.

That means that the invisible hand will not work all the time. In fact, we know it doesn’t always work. That’s why John Maynard Keynes became the economist of the hour in the 1930s. When the Great Depression hit the United States, Lord Keynes pulled a rabbit out his hat and claimed economics could make the economy work when the invisible hand didn’t.

Liberal economics and the Democratic Party

Liberal economics also called Keynesian economics, on the other hand, is founded on the bedrock of a philosophical and mathematical idea called “equilibrium”. As everyone since the ancient era of the Taoists in ancient China has recognized, the natural state of life on earth is “change”. “Dynamic equilibrium” is where change is measurable because the factors causing change are predictable. But neither static or dynamic equilibrium are the natural state in Nature. Nature, including human nature, remains elusively un-capturable.

Equilibrium is the moment when change (signified in mathematical economics by the Greek letter, “D” for “Delta”) is replaced by perfect balance. The Greek uppercase letter for “D” is a triangle. This is the symbol for an object that can balance and stay still on each of its three sides. But in reality equilibrium is more like the three points of Delta’s triangle – it’s the in-between place when one moves from one side to another side of the triangle.

Eastern religions seek equilibrium within human consciousness. For example, Buddhists meditate on becoming aware of the exact point one’s weight shifts from one foot to the other when walking. Economists, on the other hand, look for equilibrium in the markets where human beings transact economic deals. Equilibrium in the market is where a price is set by supply and demand for a particular commodity or service at any instant in time.

Equilibrium in the markets is usually like a “grace note” in music – it’s barely heard before the music changes into another tone. In mathematics it’s where a problem is solved, but just for the moment. Equilibrium, either within our hearts and minds, or in a marketplace when we interact with others, is the instant we can step outside of our time and place and get a glimpse a bigger picture of what’s going on around the place of equilibrium. That was the moment when Adam Smith discovered his invisible hand.

Who decides what’s right for you?

Wouldn’t it be nice if we could just trust in an invisible hand? A benevolent god or dictator to arrange things? Or even a small academic, military, political, and/or financial elite who could control the pace and direction of change in the markets?  But surely we know by now we can’t trust others to decide what is right for each one of us. How do we ensure that everyone who wishes to can be part of the political process?

A credulous belief in the free market is predicated on the impossible notion that enough fallible individuals in the market  could ever be “on the right track” at every instant to ensure things work out for the best. A credulous belief in the ability to create a moment of equilibrium is equally a fantasy. As soon as we become aware of the point where our weight shifts we have already moved onto our other foot. Equilibrium is the moment when the free market is working perfectly. Equilibrium is the same thing as the invisible hand. Neither one lasts. When “disequilibrium” follows, so to do chaos, error, and harm.

In the past, free markets may have worked well for long periods of time before the principle of changes made then not work anymore. The Tulip mania of the 1600s in Holland, for example, went on for decades before it burst in just a day. Nowadays, high-speed computers have caught up with time itself. These computers can identify price equilibrium in just an instant- or even a nano-second. But these computers are no more in control of markets than the invisible hand was.

The real question, the one that modern economics seeks to side-step with Keynesian short-run magic, is who decides where we go next? Who gets to decide what is right for you? Is it individuals? The majority? A  plurality? Everyone? No one? Or a small elite that thinks it knows better than anyone else?

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