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There is a fundamental problem with economics.  Well, actually I am sure there are many, many problems with this pseudo-scientific discipline of resource management (which is fetishistically concerned with money instead of value).  However, this particular problem lies at the crux of the discipline’s inability to predict human behavior or bring about valuable outcomes.   We will briefly explore why we should care about economics at the end of the post, but let’s get right to the thesis and baldly state the problem which economics does not appropriately address: humans are more concerned with status than with substance at least when they are not under mortal duress (and if they are in fear of their lives, their behavior will be irrational anyway).

The usual metaphor for rational economic thought involves pie (probably because the round pastry is irresistible and because it resembles pie charts, which economists love).  According to conventional economic theory: if you get an allotted slice of pie, what matters is how big your slice is, not who gets the rest of the pie.  If an economically rational being is faced with a scenario where he gets pie for some reason, he will happily take his pie and worry about how to make the pie bigger (even if a grotesque bully hogs the majority of the pie and then doesn’t even eat it).   From this reductionist fable we can then move on to other scenarios like increasing the participant’s slice relative to other participants (zero-sum pie?), contractual niceties of pie eating, seasonally adjusted pie indexes, or twisted game theory dilemmas…or whatever.

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Yet any parent can tell you that if one sibling gets one small slice of the pie and the other sibling eats the rest, it is going to be a problem.  Children understand that pie allotment is a proxy for social worth (which is worth more than the pie).  Economists get twisted up in unnecessarily complicated numeric models (or in facile metaphors of resource allocation) and tend to overlook the real thing people are after.

Kids innately understand that money is a red herring for status, and status is true currency.  A Hollywood A-lister can wander into a bar and never pay for anything and leave in a limousine with the best-looking person present.  Their status stands above money. Likewise, the pope or some slimy cult leader or the “communist” prime minister of a failed state does not really need to truck in naked dollars and cents.

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I was arguing about the affairs of the world with one of my college friends (he has an honors degree in economics from the University of Chicago and was managing George Soros’ fortune at the time).  He was worried that populism would vitiate the rewards of globalism.  “People will vote to get a bigger slice of a smaller pie rather than a smaller slice of a bigger pie (even if the latter is a much larger relative slice)!” he exclaimed angrily.

As moneyed interests capture all available levers of power in our troubled democracy and economic productivity drops, his words seem prescient.   I assumed then that he was talking about silly plebs, but I now wonder whether he was really talking about rapacious financiers. I guess it doesn’t matter: both these factions are now backing the current leadership’s agenda of corporate amalgamation, tax-giveaways to the super rich, isolationism, and protectionism—things which ultimately decrease the pie, but make it seem larger for the moment.

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Oligarchs and reactionaries both would prefer a smaller pie—so long as they have a bigger slice for themselves.  The pie doesn’t matter—it is not a metaphor for goods and services, like economists think, instead it is a metaphor for pecking order.  If someone tells you that you are ranked 300th among the 300 people who matter to you, what does it matter what is happening in China or whether tariffs will undo national prosperity? The fundamental metaphor is not apt, and thus economists are misunderstanding why people make the choices they do. Our fundamental problems: stagnant productivity, inequality, and political deadlock come from the fact that power brokers are busy making castes and setting them in stone…not baking pies.

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Human societies have always been hierarchical and probably always will be, so why should we care if the economists get this metaphor wrong? It matters because the pie actually should matter! The fact that everyone is jockeying for status by betting on short-term stock gains (or even scammier things) is impairing our ability to do important things. We are baking the wrong sort of pies   Our system is not producing medicines it is churning out drugs.  We are not researching, we are marketing.  The “makers” are busy making monopolies and cartels rather than space robots and immortality serums.  We really would be better with a small delicious pie made of summer fruit and real butter than with the monstrosity made of saccharine, corn starch, and cellulose.  This monstrous confection is the result of the fact that our system is some weird & debased celebrity contest (our leader is a conman and a reality tv star!). Economists need to wake up to the fact that we aren’t even baking pies…we are all in a bad reality tv show or a nightmarishly catty high-school clique.