Ecocentricity Blog - Down With The Economic Man: Thoughts on the Shortcomings of Our Economic Paradigm

By: John A. Lanier
Feb 2, 2022 9:30 AM ET
Campaign: Ecocentricity Blog
graphic of two people looking at a graph with a downward trajectory

Ecocentricity Blog - Down With The Economic Man: Thoughts on the Shortcomings …

A big part of last week’s post on the demise of coal was about economics. You might think I’d leave economics alone after scratching that particular itch. You would think wrong. That lemon’s got more juice, baby!

An Introduction to the Economic Man

Back in my college economics classes, we heard a lot about the “economic man.” He isn’t so much a person as he is a construct, and he is often called the “rational man,” “homo economicus,” or the archetype of rational choice theory. Since economics is a social science predicated on observations of human behavior, economists often make assumptions about human behavior. These assumptions then allow for the development and application of economic models and theories.

The economic man construct is one of the most commonly used sets of assumptions, and he can essentially be described in this way: when faced with decisions, the economic man will be narrowly self-interested and will make a decision or set of decisions that maximize his personal utility. Basically, he is a smart-but-selfish jerk who only looks out for himself, and he is a representative figure for how people are assumed to behave in some of our most broadly accepted economic theories.

Now that I think of it, I never heard a professor talk about the economic woman…that seems like an oversight on their part.

The Roots of Our Economic System

The intellectual roots of this concept can be traced all the way back to The Wealth of Nations, written by Adam Smith. Not to trivialize what has been one of the most influential books in human history, I do think the book’s central thesis is well captured by Smith’s famous “invisible hand” metaphor. He argued that when a government allows for the freedom of production and consumption (i.e. a free market), the phenomena of competition and self-interest within markets would act like an invisible hand moving the markets in the direction of efficiency and stability. Stated more simply, Smith thought it was in society’s collective best interest to let people freely pursue their own self-interests in the marketplace. In other words, it’s a good thing when people act like the economic man! You can probably tell from my tone that I am quite dismissive of rational choice theory and its central protagonist. To be clear though, there is a ton of merit behind the concept. Just apply the principles to your own economic decisions. If you were deciding between two equally exciting job opportunities and one would pay you $5,000 more per year, I bet you would take the higher salary. If you were looking at two comparable jars of peanuts at the grocery store and one cost a dollar less, you would buy the cheaper one. So would I. These are obvious, rational choices, and Mr. Economicus was invented by economists because they observed people making such choices over and over again. Further, I value tremendously the freedom to choose how I live my personal and professional life, and I know others do as well. I take no issue whatsoever with personal choice being a defining characteristic of an economic system, and in fact I celebrate it.

Making Room for More Than Mere Self-Interest

I know you can feel the “but” coming though, and here it is: the economic man is painted with too broad a brush. There is so much nuance in human behavior, both at the scale of individual and collective action. I don’t think it is wise to reduce our economic assumptions to such pure self-interest, and fortunately, many economists feel the same. An entire field of economics called behavioral economics sprung up because of the deficiencies in classical economic theories such as rational choice theory. When I take my kids to the post office, our local postal worker behind the counter always has a bowl of lollipops on hand. When I watch him smile and offer them to my kids as they begin to bounce with excitement, I don’t see a self-interested person employing some tactic to keep me coming back to his business. He doesn’t make a cent more if I use the post office over a private mail carrier! I see someone who delights in the natural joy of children. When someone gives food to a homeless person, that isn’t self-interest. When somebody rounds up for a charity when checking out at the grocery store, that isn’t self-interest. When someone buys carbon credits to offset their family’s carbon footprint, that isn’t self-interest. That is all altruism. We humans do it all the time. I think we should fire the economic man and replace him with the Maslow person. I’m referring to Abraham Maslow’s Hierarchy of Needs, which is a psychological framework theorizing that humans are first motivated to satisfy their physiological needs of food, clothing, water, and shelter, but upon doing so, humans become motivated to satisfy higher order needs. Next comes safety in its various forms, followed by love and belonging, self-esteem, and self-actualization. Where the economic man so often focuses on more of the stuff that ensures his physiological and safety needs are met, the Maslow person makes room for the higher order values. These have economic implications as well. A person might choose to get their busywork done at their local coffee shop instead of at home because of a sense of community and belonging. An accomplished business executive might resign from a lucrative and powerful position to take a job in the nonprofit sector because she wants to work on solving social challenges. A banker might teach personal finance to high school students on the side because he wants his skills to help others live better lives. All of these decisions create real value, just not of the sort that Mr. Economicus tends to care about.

We Need a New Economic Paradigm to Solve Our Greatest Environmental Problems

I think that the economic man’s self-interest mindset has so deeply penetrated the world of economics, commerce, and business that it is now assumed to be the only correct way to operate. It’s as if we are supposed to only maximize utility and never think of the common good. This mindset is to the detriment of our communities, our economies, and our environment. How are we supposed to solve a challenge like climate change, the ultimate collective action problem, if we expect all economic actors to only pursue their self-interest? I know the counterpoint that classical economists would say to that. “It’s our job to try and explain the world as it is, not as it should be!” To that I say, “Bollocks.” The economic man and the invisible hand won’t solve biodiversity loss, ocean plastics, topsoil depletion, ocean acidification, and a whole host of other environmental and social challenges. Often, they are the root cause of those challenges. We need our economists to say when “the world as it is” is broken. Then we need them to help us design economic systems that work for all of life on this planet. This blog is available weekly via email subscription. Click here to subscribe.

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