Perhaps the most important thing for economics is the "rational man" or "economic man" hypothesis. For a theoretical discipline, we can say that this is beneficial, it allows the researcher to extract a corner from the complex real world and gain some insight; however, as an applied discipline that is ubiquitous in modern society, economics often unconsciously transforms this theoretical hypothesis that may not appear in the real world into a social norm, with extremely bad consequences. Through the propaganda of economic theory, the formulation of economic policies, and the practice of economic activities, economics covers its theoretical assumptions on the basis of reality, and the economic operation of the whole society is considered to conform to the economic laws derived through theoretical reasoning on the one hand, and on the other hand, it must be "on the right track" with the help of various economic policies. This cannot but be said to be absurd, and the results are clear: recurring economic crises, rapidly widening inequalities, and increasingly torn factions of theory and practice.
Hayek's foresight made him aware of the "rational conceit" of human beings, whose superficial short-sightedness failed to see his own conceit—that his rational judgment applied only to a very narrow scope and could never relate to most of the realm of human affairs as he himself had assumed. I, if you've read The Ultimate Foundations of Economic Science, you know how bad that is
First, the action of man
Probably no one would pat themselves on the chest and say, "My actions are always rational." Of course, everyone knows that people's actions are sometimes carefully thought out and carefully designed, sometimes relying on a passion for blood and emotions, and sometimes they are muddy and lose their opinions. Only economists pretend not to know, because then they cannot effectively draw definite conclusions from the premise of certainty. The conclusions and planning embellished by the ironclad data are the favorites of every bureaucratic system, whether it is government, business or civil society. Unfortunately, that's how the real world is, and it's possible to deduce true conclusions from false premises, but by luck. The careful and empirical inquiry into human action is a necessary condition for the formation of a reliable economic theory; otherwise, all its inferences are lofts in the air. Now anyone who thinks carefully about economics must (and is not limited to) consider these key points:
1. Human desire is not inherently endless, except for a few basic needs, it is basically dependent on external influences, constructed primarily by culture or habits. Consumer demand depends on the influencing factors that arise within the economic system, which are endogenous. Now, all enterprises are "nurturing consumers" and consumption patterns, and consumers who usually appear as individuals are unable to compete with enterprises and participate in market activities rationally. Sociological discussions of consumerism have yielded many excellent results.
2. Humans are not inherently rational animals. From a neuroscience perspective, there is no module in the human brain called "reason" that can be invoked alone, and rational decision-making is inevitably mixed with elements of intuition, emotion, instinct, prejudice, and conditioning, and they are not always harmful to us. People will try to find satisfactory rather than the best solution to the problem at hand, because the best solution is often difficult to obtain and is basically impossible to achieve. A key corollary of the pursuit of a satisfaction model is that the order of choice it presents has an impact on the final result, while the optimization model does not. At the same time, information in the real world is by no means free-flowing, and information uncertainty, incompleteness and asymmetry are pervasive, posing a huge obstacle to efficient consumption and production. Optimal models based on rational choices are clearly unrealistic,
The rational man hypothesis must therefore be reshaped to form the basis of microeconomics in a way that conforms to the real world.
Second, as the currency of power
In economics, what money is has always been in question. Economists are less willing to accept the idea that money is the general equivalent, preferring to build a edifice step by step on a microscopic basis in their own way. Unfortunately, the "Hahn problem" shattered this dream – understanding money from a theoretical deduction perspective seems like a dead end. Let's talk about practical things, such as money as a power. It's dangerous to put two things that are hard to explain in one sentence, but to put it simply, money gives holders the ability to act and dominate socially. Do you think this is self-evident? Of course not, and a little reckoning shows that this has not been the case for most of human history, at least not so dramatically.
The world ruled by money is no better than blood or witchcraft, and it should be said to be worse. After all, lineage and witchcraft can be unexpectedly interrupted in the inheritance, and a person who accumulates a lot of money in modern society can use money to drive more people to help him collect more money and preserve it, because this power is all-round, more powerful than blood and witchcraft. Much of today's market is dominated by oligopolies and complete monopolies, which have a first-mover advantage and continue to grab high profits. In democracies, monetary power enables firms to intervene in institutional games. Not only are isolated workers unable to send lobbying groups to parliament, but they are generally vulnerable in the labour market. It is impossible to consider only economic factors in presidential and parliamentary elections, religious beliefs, foreign relations, etc. have divided the working people, and the concentrated currency has no such concerns.
Monetary returns on factors of production include labor remuneration, expenditures on owners of capital and natural resources, and land rents. Companies combine factors of production to produce goods and services. However, important factors such as infrastructure, innovation, social capital, institutions, knowledge, human capital, culture, the rule of law and natural resources are often overlooked in production. In addition, businesses are embedded in the framework provided by their communities, including public goods, legal systems, and customs. Without these, businesses cannot grow. Unfortunately, companies, under the control of managers, have turned all these factors into monetary profits, but they are only willing to show favor to investors and managers.
And here's exactly what it is: While the GNP in the U.S. has been growing, workers' wages have barely changed. Trends in income distribution suggest that since the 1980s, only the share of the super-rich (the highest 5 percent) and the wealthy (in the 80 to 95 percent range) in the United States has increased. Further, according to the utility function of reference dependence, only the welfare growth of the rich and super-rich is positive, and the 80% (or more) of the whole society is worse and worse. In addition to the old idea that money can make money, I think the power of money outside the economic world should not be underestimated.
We might as well go back and think about the requirements and future of the free market. Everyone knows that money is a general equivalent. Through value calculation and conversion, all kinds of different things can be exchanged through the market. The basis of modern free-market exchange is man (labor + time), land (space), and various natural and social resources. Putting more things into the market, production efficiency usually does not improve, but the return on investment continues to increase. This monster multiplied itself and continued to expand. Thus, human feelings began to be measured in money, and social status, living standards, physical and mental health, and sexual resources all entered the market and were gradually and increasingly dominated by money—this in itself was the most significant concentration of power, and the most significant singularization, homogenization (all measured in money). Isn't it more effective and more difficult to stop it when it operates at a supranational level and penetrates deep into the daily lives of human beings around the world than any individual country or government, or any kind of specialized management planning and design? Only by continuing to use this invincible power unrestrainedly can we truly move towards a fearless new world and a truly and realistic path to slavery. - Me, Who is Utopia? 》
3. Goal: Public welfare
The proliferation of free markets and the unlimited expansion of monetary power have seriously undermined the public interest of society as a whole, even though a small number of people have earned immeasurable wealth from them. If, like Adam Smith, we believe that the purpose of economic thought, theory, and its practice is to promote human well-being, not to satisfy the endless greed of human beings, then people-oriented, public-interest-oriented economics is the right thing to say.
The current US economy is fraught with problems. Affected by the principal-agent issue, executives want to maximize their own welfare rather than shareholder benefits. Their decisions may be detrimental to the interests of others, but they are not held accountable. Such economies are frictional and inefficient. Opportunistic behavior often means deception or manipulation, and this tendency is largely determined by culture. The U.S. business community is rife with corrupt and opportunistic behavior, and fraud can increase transaction costs on the basis of undermining trust and cooperation, forcing people to take additional stop-loss measures in the business, thus having a bad impact on the market. Given the high concentration of income and wealth, it is difficult to regulate the public interest simply, as groups are said to have spent a lot of money to encourage politicians. When lobbyists benefit their members at the expense of society, the common good of the population is undermined. Worse still, without moral constraints, the free market cannot function benignly because the law is not sufficient to sustain orderly transactions; competition is not a sufficient condition for the market to be effective as economists envision, and in most cases markets are much less efficient than imagined.
Without well-designed institutions and incentive structures, real markets are inefficient and unstable, accumulating and widening social inequalities. Without adequate oversight and regulatory structures, real markets can become dangerous, unstable, or even chaotic. There are too many possibilities for market instability, including incomplete information, opportunistic behavior, heterogeneous cognitive abilities, externalities, security, non-existent markets, transaction costs, uncertainty, sustainability, "too big to fail" oligopoly, protection of children, power imbalances, judgments of irrationality, and inequality in the distribution of wealth and income. It is the government's role to mobilize public power to address these issues, to ensure that markets operate efficiently under regulatory constraints, to maintain the proper functioning of markets by providing public goods and safeguarding the public interest, and to seek ways to promote the well-being of all citizens – without which markets would be no different from beach castles.
Some of the beneficial developments mentioned in the book:
Herbert Simon (you know, there must be him) Practice-Based Microeconomics
Joseph Stiglitz, Economics, The Price of Inequality
Amartya Sen, On Economic Inequality, Resources, Values and Development
George Akerlof, Animal Spirit: How The Human Mind Drives The Economy and Influences Global Capital Markets, Selected Papers by Akerlof, Spence, and Stiglitz
Daniel Kahneman, "Choice, Value, and Decision-Making," Judgment in Uncertain Situations: Heuristics and Biases
Paul Krugman, International Economics: Theory and Policy
Oliver Williamson, The Nature of Business: Origins, Evolution and Development
Robert Schiller, Irrational Prosperity and Financial Crisis
Richard Seyler, "Wrong" Behavior: The Formation of Behavioral Economics
Kenneth Joseph Arrow, Social Choice and Personal Value
Thomas Schelling, Micro motivation and macro behavior