I recently graduated from Roosevelt University in Chicago. Roosevelt University is "dedicated to the enlightenment of the human spirit". Roosevelt is one of the few universities that require classes in the importance of social justice. Nice liberal school. In fact, although they won't admit it, I believe in order for professors to be considered for tenure they must be card carrying members of the ACLU, NAACP, and have helped to build at least one Habitat for Humanity Home.
I don't know just saying...
Well what does that have to do with me Econ degree?
More after the jump.
Classical Liberal and Neo-Liberal economics runs antithetical to the notion of social justice.
Classical Liberal and Neo-Liberal Economics stresses the importance of individual freedom and sovereignty, the power of free-markets, and limited scope of government intervention. Their assumption is that individuals are inherently self-interested and their collective self interest will be for the ultimate greater good. Here is where we get the notion that the market will work as a corrective force. The market will not allow for inefficiencies. The less we do the better off we all are.
The Classic and Neo-liberal assumes that the market left unabated will right all wrongs, cure all ills, and is the end all that begins all.
The Market just is.
They also assume that individual actors and entities (i.e. firms and households) will act rationally. The rational behavior is of course self interest and that it can be measured empirically. The measurement can thus predict future behavior based upon mathematical models. The models take several assumptions into consideration and "holds them equal". (Holding several variables equal while simultaneously interacting with 2 or more is the fascinating perks of knowing calculus.)
Some very interesting examples of economic mathematical models are the
Phillips Curve, which says there is a direct inverse correlation between the interest rate and unemployment. The fed actually followed the Phillips curve to the letter until the stagflation crisis of the 1970's.
Another fine example is the Solow Growth model by Nobel Prize economist Robert Solow. He created the Solow Growth Model which states:
Start with a Constant Returns to Scale (CRTS) production function: Y = f (K,L). CRTS implies that by multiplying each input by some factor "z", output changes by a multiple of that same factor: zY = f ( zK, zL)
In this case, let z = 1/L. That means:
Y * 1/L = f (K * 1/L, L * 1/L)
I know this is pretty boring stuff for some folks but I have a point I swear.
Classical and Neo-Liberal economics does not take into account human emotions of empathy and altruism. There is no way to mathematically account for human emotions in a model. Some have argued that even altruism is self interest. Gary S. Becker tried to quantify human motives in his Theory on Marriage Part I and II. Read it if you have the time. Close but no cigar.
Over the years liberal economists have dominated our political discourse and tried to quantify human tendencies. Some have won awards for it. But when they are applied to real life we get things like--Reaganomics (courtesy of Milton Friedman and Ayn Rand).
And when a Social Justice angle is applied we get my Great-Grandfather of Economic theory, Sir john Maynard Keynes.
While at Roosevelt I went from a class that defined what social justice is and my responsibility to it as a good citizen of the world. To classes that by design and necessity challenged those very notions. I admit the professors in the econ department at Roosevelt challenged all of us to question the assumptions of Classic Economics. They did not teach it as gospel. But they taught it none-the-less-- Knowing all the time the failures of such a philosophy.
I went to a lecture in November of last year where one of my Professors was talking about a book he wrote called the Finacialization of The US Economy. During the Q and A I asked him why we needed the bail outs. I told him that every econ class that I have taken here at Roosevelt University taught me the fundamentals of Economic Theory--and those theories suggest that we do nothing. I argued that perhaps prices were overall to high and superficial, that in fact we might need the market to go through a corrective period in order for prices to become "real" and reach a new equilibrium.
I asked him why monetary policy had failed--that the Fed at lowered the discount rate to zero..
I said but, but you all told me these are the tools and this would work.
I told him and the rest of the department sitting in that room...
That's what you all taught me. You said it why aren’t we doing it.
Every professor in that room laughed a nervous laugh. The poor prof wasn't expecting a question like that from a snot nosed student. They all looked at him as if they felt sorry for him, and their faces acknowledged--"how in the hell are you going to answer this one, sonny"
Well he thought for a minute and he basically told me that Classic Liberal Economic theory is BS--nice in a model--impractical in real life. Real life cannot fit neatly into a production function and that we cannot assume every actor is rational when cannot agree what rational is. Meaning, we cannot quantify, measure, or name self interest if it varies.
We cannot hold all things equal.
I am saying all this because I am pissed off about AIG, and BofA, and Citi and all the rest.
I am pissed that we are losing 600k jobs a month.
I am pissed that I just graduated and cannot find a job.
I am pissed that I owe over 40k in student loans.
But I know why it has to happen and I am frustrated that I can't do anything about it. I know why they can't fail. I understand.
The conflict I find myself in is the contradiction between doing something, feeling something (social justice) and the Economic Theory.
I know that we have to go through this brutal corrective period in order to be more stable in the future.
But it hurts like hell.