Economics should now start to be treated as a full-blown scientific subject and cut itself completely away from its political economy moorings of the 18th century.
Economics ought to be able to interweave with many other scientific topics such as behavioural psychology in such works as “Prospect Theory” (1979, later revised in 1992) by Amos Tversky and Daniel Kahneman, and in the recent best-seller, “Thinking Fast and Slow” (2014) by Kahneman alone. They were the first to suggest that man is not the 100% selfish and always rational individual when buying and selling goods and services as standard economics assumed. Man can take all sorts of wayward, sometimes severely damaging financial decisions
This posting interweaves economics and human behaviour a great deal more deeply and wider than the above authors because, in the meantime there has been a magnificent flowering of evolutionary biology since accurate sequencing of human and other animals’ genes was able to be done at the turn of this century. And here, the term “instinct” will be used rather a lot as part of its necessary rehabilitation after being scorned by the politically correct fashion of the last 50 years or so who considered we were so superior to other animals that we couldn’t possibly much affected by instinct.
But there is also another widespread assumption of present-day economists that must be modified. This is that the explosive economic growth of the industrial revolution of around 3% to 4% when it started at around 1780 is par for the course and could be maintained indefinitely however finite the earth’s resources are or however large its human population has grown. The basic laws of physics enter here and, in particular, the derivation of the Principle, or Law, of Least Effort as especially described by Richard Feynman, in his famous “Lectures” in the 1950s and ’70s is of special importance..
The Principle of Least Effort means that, for any level of energy applied, any mechanical system reaches a stabilisation point using least energy — any surplus being used to overcome internal constraints in the system and then subsequently sloughed off as waste heat. And this applies as much to the world economic system as to anything smaller or larger.
As both economic growth and the annual increases in energy has been decreasing since about the 1980s to about 1% to 2% at the present time, we could make a reasonable guess that constraints against further economic growth are growing and that we may not be far off a stabilisation point.
Looking at constraints very briefly here what might they be? Almost all of these can be summed in the one term already mentioned — instincts. Within our genes we all have deep proclivities to feel and act in certain ways that generally made survival sense during the millions of years when our predecessors lived in small groups on the African savannah — and, indeed, in the forests before that. But in today’s social structures — fashioned as they are by the nature of modern innovations and the exigencies of work — the same instincts, if they interene too often, may be economically inappropriate, counter-productive or even disastrous.
Here are some of the strongest instincts — though nowhere equally elicited in every individuals. All these can, and do, override rational economic decision-making on occasion: (a) socialization — the strong desire to belong to a group; (b) the desire to have an agreed role within a group (c) the automatic belief that the culture of one’s own group or class is superior to most others;
(d) easily worked-up state of euphoria or fear or even change of cognitive beliefs within a group — peer pressure; (e) strong loyalty to one’s group and to protect its comparative advantages for survival at almost all costs; (f) males generally to have sex whenever possible and with younger females in particular;
(g) females generally to choose males of higher social ranks; (h) females generally to eschew genetically handicapped males as sexual partners. (i) altruism mainly confined to individuals of one’s own group and generally extended only rarely to individuals who may impinge on one’s group.
All the above are group related. They are a far cry from the usual motivation ascribed by conventional economists — greed, or selfishness or self-care, though even they will grant that altruism of the above sort also exists and can influence economic decisions. There is also another sort of altruism or benefaction, and this is when it is exhibited publicly, or at least semi-publicly, and motivated by desire for a gong or status or popularity — in other words another form of self-care.
But it’s the altruism of the penultimate paragraph that can cause economic problems. Often when it is extended to different groups or classes or countries outside one’s close knowledge then it can be counter-productive.