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Posted
February 25, 2009

Why Economists Are So Often Wrong

They simply don't understand we have instincts that go beyond money. Things like coffee shops and conviviality.

What is called “economics” is really psychology on steroids. It starts with a model of human nature and extrapolates an entire scenario for how the world works from that. The model is homo economicus,the myopic protoganist of the economics texts. This hypothetical person has no social affinities, no lapses of judgment or hang-ups, no capacity even for thinking about anyone besides him or herself. He goes through life with an unfailing and relentless calculus of personal loss and gain.

As I explained in the first part of this essay, The Tragedy of Economics this portrayal of our basic nature did not arise from actual inquiry. Homo economicus was from the beginning a polemical construct, devised to serve political ends. At first this was to help undermine the secular authority of the Roman Church, and then the divine right of kings. More recently it has served to justify a fundamentalism of what is called “the market.” Along the way, it has provided economists with the semblance of a predictable atom of economic activity. This has enabled them to declaim under the banner of “science,” and has given them a hook on which to hang their arcane math.

Today, psychologists can only roll their eyes at this naïve portrayal. People who have to deal with actual humans in market settings – such as advertisers and corporate managers – find it borderline irrelevant. A new field called “behavioral economics” (which ought to be redundant but revealingly is not) is picking apart homo economicus within the temple of the profession itself.

The only people who still take the model seriously are economists themselves. There is an element of projection in this; studies have shown that economists tend to resemble homo economicus more than the rest of us do. Nevertheless the model remains the ghost in the machinery of economic analysis, and defines in large measure our sense of the possible. When ideologues argue that our only choice is between a corporate market and a bureaucratic state, it is the assumption of homo economicus that makes this so.

Yet before our eyes, another reality is emerging – or rather re-emerging, because it once served humanity for centuries. That reality is the commons, which derives from a different side of human nature, and therefore operates on different principles than the market supposedly does. That other side is not the sappy, self-sacrificing altruist that marketophiles posit as the only alternative to their model of human behavior. Nor is it the grim utilitarian socialist. Rather, it is whatever resides in us that wants to be engaged with and around other people – whether to accomplish a task or just because it is fun.

This convivial side of economic life is beyond the bandwidth of most economic thought. The corporate market tends to repress it, and partly for that very reason it has been fighting its way back through the concrete. Cyberspace and the World Wide Web gave it a vast and unenclosed new realm, much as the New World once did for the surging energies of Old Europe. [David Bollier tells the story in his new book, Viral Spiral.]

Yet the Web has been just the most visible and suggestive venue for something that has been happening throughout the culture. Spontaneously, and in a multitude of ways, people are trying to resurrect the social dimension of economic life that the corporate market version increasingly has displaced.

An example is the revival of the urban commons – settings that encourage in physical space the kind of social dynamic that occurs virtually on the Web. City and civic leaders have begun to grasp that the best way to bring back life to downtown is to create spaces where life wants to be. Portland’s Pioneer Square has become a reference point for the movement, along with older spaces such as New York’s Central Park and Boston’s Common and Copley Square.

A more recent shining example comes from an unlikely city, Detroit. Back in the 1970s, in the wake of devastating riots, Detroit tried to revive its downtown through a corporate megalith called Renaissance Center. The Ren Cen became a walled fortress and metaphorically enough, home to General Motors. Then, in the late 1990s, someone in Detroit proposed the opposite approach: a large inviting public space. The result was Campus Martius, in the middle of the old downtown. The Motor City even displaced cars to make room for people. Life is returning to that part of the city. People actually are coming in from the suburbs to experience what the city offers that suburbs can’t. Investment is coming too – over half a billion dollars worth and growing.

Something similar is happening at the neighborhood level. Instead of retreating to their own patches of urban turf, neighbors are tearing down their back fences to create larger shared spaces. This happened at Montgomery Park, an inner city oasis in Boston’s South End. The Baltimore city council recently passed an ordinance to make it easier for neighbors to close off back alleys to make secure commons. The mayor has embraced the idea; and over the past year more than fifty neighborhood groups have begun the process. (There are some 466 miles of alleys in the city so the potential is large.)

Traditional main streets serve much the same function. The growing antipathy to Wal-Mart and other big box stories comes from more than a concern about sub-living wages. “They don’t sell small-town quality of life on any Wal-Mart shelf,” said an opponent, “and once they take it from you, you can’t buy it back from them at any price.” Another put it more simply. “This is our town, not Wal-Mart’s

The social productivity of traditional main streets has a multiplier effect. Studies have shown that localities with large numbers of home grown businesses, along with community institutions and family farms, have higher median incomes and lower unemployment. States in which a large share of the retail business is locally owned, rank higher on a wide range of social, economic and civic measures.

One scholar who has studied this phenomenon, Charles Tolbert of Baylor University, cites a gas station owner in one town who switched from self-service to full service during a recession, and hired ten additional people. He had to charge more, but most of his customers kept coming anyway, because they understood that the extra pennies per gallon were providing jobs for their neighbors. Homo economicus wouldn’t get it. Most of us actual people do.

Nowhere is the reclamation of the commons more in evidence than in regard to food. Food is where the human economy began. It once served as a locus of community — in the growing, selling, cooking and eating — but today that dimension is largely gone. Most of us have no idea where our food even comes from, beyond the supermarket. We scarf down Egg McMuffins in the enclosure of our cars. One result has been the social equivalent of empty calories — a hunger that no amount of eating seems to fill.

Farmers’ markets have been one answer to both improve our diets and enrich our experience of community. The growth in markets has been remarkable — from 1,755 in the U.S. in 1994 to 4,385 last year. (By comparison, Whole Foods now has about 270 outlets in the U.S. and England.) Farmers Markets are not just – or even mainly — about organic food. They are about local food, and the opportunity to deal face to face with the people who produce it. They also are about the festive sociability of the market itself.

People go to partake of the bustle and good spirits, something that doesn’t much happen at Safeway or even Whole Foods. “See you at the farmers’ market on Saturday” is a common leave-taking in my town.

Community gardens have grown in a similar manner, and for some of the same reasons. There now are some 18,000 of them in the U.S. alone, according to the American Community Gardening Association. These gardens replicate in urban settings some of the social dynamics of the traditional rural commons; neighbors share tools and help one another when the need arises. Perhaps no institution better embodies more the revival spontaneous sociability associated with the commons than the local coffee shop. Not that long ago, coffeehouses in the U.S. were associated with college towns, bohemia, and dark angry poetry. Today they are everywhere — from some 585 in the U.S. in 1989, the number grew to more than 20,000 today. It might seem that most of them are Starbucks. But according to the Specialty Coffee Association of America, independent shops still outnumber that ubiquitous chain.

For all its corporate prefab quality, moreover, even Starbucks provides a space in which to meet people, or simply sit in the anonymous company of others. In suburban malls, it is the closest thing to a commons to be found. Starbucks knows that it is selling not just caffeine but also a sociable “third place” between the private spheres of home and work. Even when people look busy working on computers they are open to serendipitous encounters, and are partaking of the flow of life.

You could write the history of human inquiry and freedom from the standpoint of coffee shops. Stock markets and scientific societies began in them, as did Lloyds of London, the insurance exchange. Richard Steele ran the Tatler, the first modern newspaper, out of London’s Grecian coffee house, and used it as his postal address. The American and French Revolutions were fomented by men who, as one writer put it, saw the prospect of change “in the depths of their black drink.”

Jurgen Habermas and others have argued that coffee shops are where civil society itself began. Whether one goes that far or not, they clearly played a role; and the revival of coffee house culture today—and the larger urge for a commons-based society of which it is part – suggests opportunities for social change. Sociability and action are connected. You are more likely to join with others in a cause if you are familiar with them first. The farmer-populists started out at Grange picnics, the civil rights movement in Southern churches.

Ralph Nader’s father, a Lebanese immigrant who ran a restaurant in Connecticut, once observed that television “has replaced the dictator’s ban on three on more people gathering in one place without a permit.” But now that people are reclaiming the urban commons and going out in public again, who know what will happen.