“Shock horror: markets can exploit your weaknesses.” If George Akerlof and Robert Shiller’s brilliant new book were to be summed up in a single headline, these seven words would say it all. While such a headline might indeed be a shocker for the average economist, it’s hardly going to be big news for anyone else. The overriding message of this book is that people are not perfect – that we each have our own particular weaknesses, and the market looks to exploit these imperfections, tempting us to buy all of those things that we know are not good for us. In other words, markets can be predatory.
Now, of course, the only thing that is particularly shocking about this message is the very idea that it is supposed to be shocking. The fact that two Nobel prizewinners need to make a big song and dance about the notion that markets can exploit perhaps reveals what a flawed discipline economics has become – one that urgently needs shaking up.
Let me make clear from the outset that I have absolutely no problem with Akerlof and Shiller. They are nobly doing their utmost to transform the discipline, including with this important new book. However, what I do have a problem with is the discipline itself, and, as an economist, I’m not ashamed to admit it.
Economists are known for their obsession with the market; it’s one that dates back (at the very least) to Adam Smith and his The Wealth of Nations, published in 1776. Markets do, of course, have their virtues, as Smith made clear, but they also have their downsides – downsides that should be obvious to anyone who actually uses them. What is breathtaking is that it has taken a whole 240 years since Smith’s magnum opus, and the cumulative work of thousands of economists, to move from the idea that markets serve our best interests to the idea that markets also serve (or rather exploit) our weaknesses.
The reason for this lack of progress in the discipline is simple: economics is the preserve of a relatively privileged group of (mostly) white Western males. The result is that the subject fails to capture the experiences of those most likely to be on the periphery of the market economy, such as ethnic minorities, people living in poorer parts of the world, and, of course, women. In other words, all of those who are most likely to be exposed to the negative forces that markets can bring, the very people who can find themselves in the most vulnerable and precarious positions, where markets can bring risks of exploitation as well as gains.
It is perhaps no surprise that the expansion of the state in the 20th century was associated with the spread of the vote to these less privileged groups. As Western policymakers now attempt to push back the state, it is worth remembering that those who are in the best position to see the benefits of state intervention and the potential hazards of the free market are precisely those whose voices are not regularly heard in the corridors of economics departments. No wonder it has taken Phishing for Phools to help draw attention to the realities of life.
Although this book is not going to change the views of any non-economist, one can but hope that it will be taken seriously by economists. More importantly, however, the book serves the important purpose of holding up a mirror to economics, a subject that prides itself on (supposedly) being the most sophisticated of all the social sciences. Economics may look sophisticated on paper, but it is often completely out of touch when it comes to reality.
Victoria Bateman is fellow and director of studies in economics, Gonville and Caius College, Cambridge, a regular contributor of economic commentary for CapX and author of the book Markets and Growth in Early Modern Europe (2012).
Phishing for Phools: The Economics of Manipulation and Deception
By George A. Akerlof and Robert J. Shiller
Princeton University Press, 288pp, £16.95
ISBN 9780691168319 and 9781400873265 (e-book)
Published 23 September 2015