If scientists can get it right, why can’t economists?

Headline in The Times today (27 March):

“After more than 200 years, science admits it: Adam Smith was right”

It certainly grabbed my attention. No, it’s not nonsense about theories of the ‘invisible hand’, myths about ‘laissez faire’ or silliness about incorrigibly selfish ‘economic man’. It’s right on the money instead. It’s from Anjana Ahuja’s ‘science notebook’.

Research scientists looked closely at Smith’s first book, ‘The Theory of Moral Sentiments’ (1759) and are using its insights into human behaviour to explain research results that otherwise would stump them.

This is not surprising really; so many well-trained economists, proud of their prowess as the ‘hardest’ of the ‘soft scientists’, and over-loaded with competence as applied mathematicians, have ignored Smith’s initial writings in his main field of competence: moral sentiments, and, inconsequence, have created, or rather let loose on popular perceptions (repeated endlessly in the media) of a one-dimensional market player.

The problem with giving false authority to ‘anything goes’ greedy behaviours is to sanction them, as Geko put it, as ‘good’. It works against how most people prefer to behave and gives the small minority of socio-paths a license to behave as many ‘economists’ say they must: ‘go out and crush the competition, fool the consumer, ignore moral restraints and fill your pockets in the process.

Anjana Ahuja reports:

“During the past ten years scientists have confirmed Smith’s insights. People who trade money with strangers in a laboratory setting have an instinctive sense of fair play and reciprocity; chimps and capuchin monkeys also possess this instinct. These non-human primates display, just as we do, a sense of trust in response to generosity, and resentment in the face of selfishness. Such brooding resentment, in fact, that volunteers (and chimps) will often forgo reward in order to punish selfish participants.
Such experiments have spawned a new branch of economics called neuroeconomics. And with this have come some surprising ideas about how markets should operate.”

Professor Paul Zak, from Claremont Graduate University in California, is reported to have concluded from recent studies that:

“we need a compromise — a skeleton of formal regulation to stop the sociopaths taking advantage, fleshed out with plenty of self-regulation. Thus, we have a neat scientific explanation of why moderately regulated economies are the most creative and thus the wealthiest.
We can’t rely on people to be angels, but too much enforcement risks inhibiting people’s natural mechanisms,” concludes Zak, who spoke last week at a Cambridge University conference on whether moral values are essential in business. “And any regulations have to reflect our underlying, innate sense of values, otherwise they won’t be followed.”

Comment
Recent corporate corruption trials are not a sign that markets don’t work. They show the appropriate end reached by to those who apply the amoral image of ‘greed is good’ corporate leadership.

Meanwhile, more economists should read Adam Smith on ‘Moral Sentiments’ (there is a most inexpensive edition unselfishly published by the Liberty Fund: click on Amazon) and then read or re-read ‘Wealth of Nations’.

[Read The Times article in full at: http://www.timesonline.co.uk/article/0,,6-2105062,00.html]