Keynes and his essay titled “Economic Possibilities for our Grandchildren”
believed capitalism not as an ideology to embrace but as a mechanism for getting from scarcity to abundance
- theorised that if productivity rose and population remained constant, we would get to the stage where we had enough and we would turn our attention to leisurely pursuits and drastically cut down on work
However we don’t appear to have turned attention to leisurely activities
Annual work hours in the UK dropped from 1930 to 1960 but after they stabilised, so what’s gone wrong?
Shiller & Akerlof in ‘Phishing for Phools’
‘phishing’ defined in relation to an internet fraud when individuals tricked to give away personal details
“it is about getting people to do things that are in the interests of the phisherman”
“producers have been just as inventive in getting us to feel we need what is produced as they have been in filling the needs that we already have”
Neoclassical vs BE
In neoclassical economics, competitive, free markets are Pareto optimal
everyone is better off at equilibrium
Neoclassicals focus on:
- Market externalities: events which aren’t picked up by market itself e.g pollution
- monopolistic markets
- as markets naturally move towards equilibrium and this is efficient, we should have freedom to choose
- this assumes that we know what is best for us so we can choose what is best for us
- BE argues that we don’t always choose what is best for us
How phishing brings about wrong choices
“when there are completely free markets, there is not only freedom to chose, but there is also freedom to phish”
“it will be an equilibrium that is optimal not in terms of what we really want, but an equilibrium that is optimal, instead, in terms of our monkey on-our-shoulder tastes”
- PfP
we are constantly being manipulated into making decisions and neoclassical economics does not appreciate the efforts and sophistication that goes into understanding our weak moments and the strategies that are developed to take advantage of those. We are constantly being phished
“the ability of free markets to engender phishing for pfools of many different varieties is not an externality. Rather it is inherent in the workings of competitive free markets” - PfP
How we are influenced and creative destruction
“we are in the mercy of an overwhelming number of mechanisms that influence us to make the the tempting short term decisions” - Ariely
- those that do not exploit human error will be punished and their competitors are being rewarded for doing so
Phishing in the economy
estate agents start with showing clients over-priced houses that they kept on their books which are run down houses at inflated prices (also an example of reference points)
they then show the places they want to sell and watch their eyes light up
social norms:
- “best-selling”, “fastest growing”
- advertisers don’t need to persuade us that a product is worth buying but rather only need to tell us that others think so
- nightclubs leave queues outside
“there are a lot of people and businesses who are busing persuading others to do things which are very much not in their interests and that they will probably regret” - David Halpern
Conclusion of phishing
- part and parcel of capitalism
- our decisions are not always rational and in our best interests
- we are prone to group conformity
- businesses are incredibly sophisticated in understanding how we make decisions and in phishing us for pfools
- the consequences of this is inter alia increased indebtedness, environmental issues and issues with health and obesity
