Meet the Homo Economicus
Posted on February 12, 2016
As I start to wrap up my study on poverty over the next few weeks, I feel I need to introduce you to a very important person in the history of economics, Homo Economicus. Homo Economicus is a human, is always rational, focuses on their own self-interest, and always pursues their economic, social, and personal goals in the most optimal way possible. In order for us all to give Homo Economicus a personality, let’s call him Spock, a character most of us can connect with easily. (To the Star Trek fans out there: I know Spock doesn’t always act in self-interest, but forgive me for taking a small liberty to make a point).
Spock is critical in economics because, for nearly two centuries, we have used Spock to understand human behavior in economic systems. The classic example of this is Adam Smith’s Invisible Hand. This is where a society full of Homo Economicus, or Spocks, acts in its own self-interest. Smith, and many others since, believed and argued strongly that this Invisible Hand of self-interest over collective interest actually benefits society more than if that society took specific actions to better itself (poverty programs, universal health care, social services, etc.).
A culture of Spocks spend their evenings reading Consumer Reports, spends hours researching candidates before voting, and mindfully plans the best path forward to reach their well-thought-out goals. If Spock wants a new car or home, he will forego luxuries like going out to eat, buying beer, donating to charity, taking in a play, or buying tickets to a basketball game. It makes much more logical sense to put money into the goal than to spend it on short-term and frivolous pleasures.
Another great example of the Invisible Hand is Gordon Gekko from the film Wall Street. In this movie, Gekko makes a famous speech with a line the immortalized the move: “Greed is good.” In Gekko’s thinking, stockholders’ greed for the highest returns pushes companies, and citizens push the country, to perform at its best. Depending on your economic perspective, Gekko is a hero or villain. Regardless of your view, there are many authors, researchers, and economists that hold Gekko’s philosophy as “the” American economic philosophy. If you have a minute, take a look at Gekko’s speech. While it is almost three decades old, you can still hear it resonate from the Republican debate stage.
Traditional economics believed that Spock, Gekko, and all the Homo Economicus will, collectively, make better decisions than policy makers. This is where George Gilder’s view of fatherhood can be put into context. He believes that Spock, the impoverished father, would be a good provider, employee, husband, and parent if left to his own devices. The problem comes, in Gilder’s view, when government makes it easier to live on welfare than get a job, provides free healthcare (taking away the motivation to find a job that offers it), and rewards great welfare payments to single mothers making men at best useless and at worst an economic burden.
While you know that I disagree with about everything Gilder believes, I see him as though he is a child raised in an environment that was similar to a cult. If you were raised worshiping at Smith’s Altar of the Invisible Hand, and believing with all your heart that Gekko is Smith’s messenger sent to free America from the bleeding heart liberals, the world from that altar looks and behaves in a certain way. In poverty, Spock will act in his best interests to maximize his income and his long-term goals, and if living off the “riches” of the welfare system is more logical than getting a job, than there will be no motivation to move out of the system that Gilder sees as rewarding laziness, “beastly” sexual behavior, and single parent households.
Recently, however, Homo Economicus has been shown to be in some great company. Behavioral economics, which will be explored in next week’s post, and neurobiology have relegated Homo Economicus to the academic standing of Bigfoot and the Loch Ness Monster. In reality, humans are incredibly illogical, and when you add the impact of stress and trauma, we can become even more so, as we rely heavily on our emotional and reactive brain to survive this reality.
This leaves me with a troubling question: Where the hell were we? Even before I learned the science about brain functioning, I saw huge flaws in Homo Economicus and the theories that rely on him. At its very core, conservative economics is terribly misguided and flat-out wrong. From Carter to Reagan to the Bushes and Clinton, we have continued to operate from an economic philosophy that has led to increased poverty, income inequality, a prison state, and, when combined with racism, the destruction of whole communities.
We have seen this happen, sometimes slowly and sometimes rapidly. Where was our collective voice? Why aren’t we organizing? Are we too small or too tired to fight against what we know doesn’t work? Please know when I say we I mean me! This failure sits very heavy on my heart, as I was in the front row for much of it.
I would love to hear your thoughts on this, so please utilized the comment section to vent and brainstorm. Too many lives are at stake for us not to figure this out.
I ask myself why we aren’t organized either, practically daily. I can tell you from my perspective…I’m a single mom, commuting to SF from the East Bay, at least one hour each way; on a good day. My 12 y/o gets himself to school, gets home, does his homework and sometimes even cooks dinner. My point is, that I’m pretty overloaded. Taking care of really sick people all day, coming home and making sure my son has all of his needs met. Trying to have really good days and really good times in between all of the business. I’m a middle class American trying to make ends meet. They keep us busy…they, meaning America. We have to make so much just to survive. I don’t feel like I have the bandwidth to organize. While I believe that if we did, we’d be a very powerful bunch.
I’m sick of the political climate and economic system of haves and have nots. I make a good income; yet, I’m forced with 10% rental increases every year, I cannot afford to buy a home and my life is not very stable when it comes to housing security. (I worry about this constantly) I can afford a car, food and a roof, for now. Every year I sweat my rent increases, making less and less money to spend elsewhere. My job gives 2% increases every 3 years. Do the math, it’s insane. Somehow the landlords feel justified with 10-15% increases annually, because this is the market rate. Actually, we have organized and formed a rental coalition. Politicians don’t listen. We’ve been at it a couple of years, landlords are so confident that they will succeed and continue with the way things are going. The Mayor and City Council spin their wheels making it so difficult to side with renters. Many families and low income folks have already been displaced. We protest, write letters and nothing. Nothing happens.
I feel for you Beth, I’m so tired that those who dedicate their lives to the service of their community can’t even afford to live in those communities. Money isn’t our motivation but poverty shouldn’t be our thanks! For what you give up and the struggles you take on to do this work…know that you are my hero!
Amen, the very people that need to rally are too damn tired to do anything or not afforded the knowledge and empowerment needed. We are all trying to keep our heads above water and help those who are struggling around us. Meanwhile the wheels keep on turning fueled by tradition, greed and fear. I hate that last sentence, “nothing happens!” How hopeless that must feel for you. I am sorry. It shouldn’t be in a country “by the people for the people.” I work with the homeless in downtown SD and we are about to lose 10,000 SRO beds! Gentrification at its finest. Matt your blog helps but I completely agree, we NEED to figure something out.
At times it feels hopeless, but then I think of my heroes who everyday help the those in tremendous pain find hope and I find my motivation and energy to keep fighting. I can imagine the loss of 10,000 beds must hurt your soul (and so many others). I also know that if we were not here then all this would be happening at an even greater level. Thanks for the reframe my friend and know my heart hurts for those who need those beds.