Welcome to our 25th issue which is quite a milestone for us. Given that our mission is to open up thinking on economics it’s probably no surprise that our theme is truth.
But truth comes in many forms. Critics of mainstream economics often focus their scorn on the implausibility of the unwaveringly rational, utility-maximising agent, that that school of thought has as the true representative of real people. Less attention tends to be paid to an equally amazing assumption behind that version of the truth.
That is the assumption that those agents possess perfect information needed to inform their rational decision-making and to ensure that markets achieve an optimum outcome. In this issue we want to take this outside.
The nonsense of the assumption has not gone unnoticed by mainstream economists. Indeed a number have gained Nobel prizes for the exploration of the implications that this assumption does not hold water. For instance, George Akerlof and Jo Stiglitz, clearly get attention beyond the heterodox community. In truth the implications put a big hole in the faith in markets so, in a shock twist, they are not highlighted in Economics 101.
The giveaway is the term economists use in their attempt to shore up the creaking logic behind the notion of a fully-informed global population.
The giveaway is the term economists use in their attempt to shore up the creaking logic behind the notion of a fully-informed global population. The term is “asymmetric information”, a suitably technical-sounding piece of verbiage one might expect from folk with scientific aspirations. More bluntly it means that one party to a transaction can use their greater knowledge to get one over or exploit the other party. Clearly it is much less pretty than “asymmetric information” might suggest.
I came face-to-face with a real-life situation of asymmetric information in my 20s sitting across the table from a man from McMafia central casting –I was working in community business development in a deprived housing estate in Edinburgh called Wester Hailes. His look suggested that if I got on his wrong side, he would ensure my face ended up being significantly more asymmetric.
I was sat across the table from this man because I had asked a friendly photocopier salesman to set up a meeting with his boss to sort out what I naively thought was an unfortunate mistake. I thought I had signed a receipt for a photocopier rather than a seven-year contract. Within minutes – the man from McMafia did not bother with any niceties – it became clear that this was no mistake.
Following that eye opening meeting, I looked at all our paperwork for our photocopiers and began to understand their business model. They leased the machines on a seemingly great two-year deal. However, the very small print revealed the lease was actually for seven years and would be hiked significantly after two years unless you took a new “two year” deal on a lower price than the newly inflated one.
Effectively you would be tied to their ever-increasing rate with no real option to leave. There was no consumer protection as their prey were all small businesses and community groups.
I discovered later that my boss had signed previous leases with them so I didn’t lose my job. But ultimately the local council had to pay over £50,000 to get out of the leases – a story for a different time.
Apple is clearly seducing us with designer iPhones and Macbook Airs so we become dependent customers.
You might think this looks like an outlier, a semi-criminal operation or that I really should have read the contract properly (like we all do when we click on “agree terms and conditions”). But consider Apple’s business model.
Once you start using the Apple system, it is very convenient that all your devices interact but how easy would it be to leave it? Apple is clearly seducing us with designer iPhones and Macbook Airs so we become dependent customers. Strangely, Apple doesn’t make its business model or these long-term implications clear to customers.
And what about economics itself? The profession and its believers tell a nice tale of the power of markets to make everyone better off and how growth solves all problems. But you really have to read the small print to learn about information asymmetry or about any of the other flaws in the mainstream fairy tale such as markets driving inequality, growth driving ecological breakdown or finance driving exploitation.
So in this issue we are putting some of this small print front and centre so you can tick the box with confidence (or not tick at all).
We talk to Alice Sherwood about her book, Authenticity. including an edited extract on drug counterfeiting in China, Jason Miklian and John Katsos examine the challenges in understanding what ESG investing actually means and Paul Frijters looks at the dangers from dark money distorting reality.
Noel Cass explains how the rich fool themselves that they are doing their bit for the climate, Richard Vague looks at the fake drama around the US debt ceiling and we talk to Rosie Collington about hers and Mariana Mazzucato’s new book The Big Con: How the Consulting Industry Weakens our Businesses, Infantilises our Governments and Warps our Economies.
Moving to economical approaches to truth, John Perkins explains how loans to fund the promise of development are actually used to achieve political control with China now leading the way, we talk to Alan Kirman about his quest for real understanding of markets and I tell how economics has used the Nobel brand to claim science status and how we sought to challenge that.
More broadly Steve Keen challenges whether Elon Musk really understands how to make money, Bronwyn Howell brings virtual reality back to earth and Margaret Lund explains how multi-stakeholder cooperatives can underpin economic collaboration.
Jason Van Tol considers education and money and Willy Diddens examines the implications of effective altruism and mega rich philanthropists.
Last but not least Frances Coppola in her regular column looks at the effect of social media on banking collapses, and Verity faces up to a new holistic healthy lifestyle, which of course is not what it seems.