Why Economists Can't See the Economy: Economic Theory and Economic Fact Have Long since Parted Company. and since We Structure the World According to the Theories of Economists, This Imperils Just about Everything

Article excerpt

"The purpose of studying economics is not to acquire a set of of ready-made answers to economic questions, but to avoid being deceived by economists."

--Joan Robinson, Cambridge University

ON PAGE ONE OF THE WEALTH OF NATIONS, ADAM Smith illustrates the central principle of his economics with an example taken from, in his words, a "very trifling manufacture": the making of pins. Smith goes to some effort to describe the process. "One man draws out the wire," he writes, "another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head." In all, Smith counts 18 different "operations," then estimates that such specialization boosts productivity at least :240 times over what the same number of men, each working alone, could accomplish.

Smith's pin factory has served economists ever since as an organizing vision of what economics should work toward. "Specialization is wealth" is the idea that, to greater or lesser degree, orders the thinking of all economists. And due to the immense influence of economics within our society, this vision has come to shape how we view our world and organize the industries on which we all rely. America's promotion of free trade, at the most simple level, is just the vision of the pin factory supersized into national policy. If specialization across the factory floor is good, and across the nation's breadth is better, then across the face of the globe is best.

But what does it mean when such a dream comes true, and the dreamer does not realize it?

Look closely at today's global production system and you will see shockingly high degrees of specialization, in terms of both geography and ownership. More and more activities take place in only one or a few places on earth, and within one or a few companies. This is especially true in electronics: Taiwan produces more than half of the world's vital customized chips. But it is also ever more true of heavy industries, like automobile manufacturing, even of agriculture and food processing. One of the crowning conceptions of the Enlightenment has been achieved, yet economists appear entirely unwilling to recognize the fact, let alone begin the task of examining how this revolutionary event might alter the purposes and pathways of their work.

For America, this is a big problem. As Adam Smith understood 230 years ago, decisions on how to divide the tasks necessary to produce pins are based not merely on questions of efficiency but also of engineering. If anything, the engineer's work naturally precedes that of the economist. Americans would never ask an economist to design a suspension bridge or a newjetliner, though we wisely insist that engineers give the economists a seat at their table. Yet when it came time to design the most amazingly complex system ever devised by human beings--the global production machine--we relied only on principles that spring from the mind of the economist. We did not insist that economists offer the engineers a single stool at the table; we did not insist they even invite the engineers into the room.

Our brand-new global factory does look awfully efficient. But it is an efficiency purchased through the destruction of all flexibility, and hence sustainability. What we should be fretting about now is what happens when, one day soon, we awake to find that war, revolution, disease, or natural disaster has cut us off from some one of the increasingly scattered pockets of workers we rely on to produce keystone industrial components or to process vital back-office information; what happens when, for want of access to one or a few of the links that make up the global assembly line as a whole, our entire industrial system breaks--pins, electronics, pharmaceuticals, food, and all.

ONE OF THE MORE FASCINATING ACADEMIC EXERCISES IN America these days is to sit down with an industrialist to discuss the growing brittleness of our production systems, then raise the exact same points with an economist. …