The Value of Nothing

The Value of Nothing – by Raj Patel.

If war is God’s way of teaching the Americans Geography, Recession is his way of teaching Economics. The books title comes from Oscar Wilde’s famous quip, “Nowadays people know the price of everything, but the value of nothing.” Raj Patel a B.A. economics from Oxford, M asters from London school of Economics and Ph.D from Cornell University has pointed a flaw in our unstoppable attempts to equate the price with value. This mistake in the process has created a huge disequilibrium in the wealth distribution.

The free market capitalism attempts to tag everything, even the things we might shy away from pricing: Land, Labour and even Human lives. The problem in pricing things that shouldn’t, is that they get commodified and can be placed to use other than the original intention. The process of pricing anything and everything leads to financial slowdowns. Although every boom is followed by a collapse, the worry nowadays is the increased frequency of the economic slowdown. Earlier in the previous decade the houses of middleclass families all over, including India, that were seen merely as a place to have shelter, turned into financial assets. But things collapsed in 2008, thanks to one of the biggest bank in the world, Lehman brothers.

Although greed is acceptable in business, it needs a limit. Profit is what every businessman is thriving for and there is no objection but the terms on which markets operate are set by the powerful; our tragedy is to have let this happen.  Moreover, seeing world through market has got us in trouble and that not only distorts our sense of ourselves, but projects our own disability onto others.  It is referred as Anton’s blindness, named for an Australian neurologist Gabriel Anton. This is a rare medical disorder that occurs after a stroke of traumatic brain injury, in which sufferers are blind, but possesses a fervent belief that they can see. The blindness, the anosognosia here is our faith in a faculty that routinely betrays us – in the demonstrable false promise that profit-driven markets can point to true value. The solution to this  blindness is in expecting a lot of change in behavior within the market society and not just in the form of government reforms. Karl Polanyi’s book “The great transformation” had something similar to say.

John Mill coined a word in 1836, ‘Homo Economicus”. Just as Geometry defines a line as a figure that which has no breadth but only length, Political economy presupposes arbitrary definition of man, as a being who invariably does that by which he may obtain greatest amount of necessaries, conveniences and luxuries with the smallest quantity of labour and physical self-denial with which they can be obtained with the existing state of knowledge.

 Gary Becker, in his 1967 Opus, “The Economic approach to human behavior”, claimed that economic approach provides a useful framework for understanding human behavior. Gary won Nobel Prize in 1992 for his contribution.

Becker’s economic method involves three ideas, the first is that everyone and everything is a maximizing animal. People, Government and Corporations can all be thought of as Homo economicus pursuing, as best as they can with the recourses they have, as much of a giving thing as they can get. The second is that the Homoeconomicus’s preferences happen in a market of a sort and the third is that the Homoeconomicus’s preferences are the same across all societies and circumstances. It is not surprising to see that culture can shape how resources are accumulated and distributed, and dictate the social priority of saving over Sharing. Opposite of consumption isn’t thrift- it’s Generosity.

Behavioral economics has a game on this called. ‘The ultimatum Game’. You are donated `100 but the entire value isn’t yours. You have to share it with a stranger. Divide it into two parts, part A and B. Part B for the stranger. After the division is done, the stranger to take part B and the part A can be retained by the person who divided the sum. How will you divide the sum? May be 100 in part A and zero in part B. But the interesting condition in this game is that if the person taking part B is unhappy with the division she can reject the offer and in that case the part A also gets seized and the game ends with both getting zero sum. So the trick is to allure the person taking part B and at the same time maximize our gain. The experiment tries to prove a point that your profit depends a lot on the happiness of others. The experiment showed that most of the people participating in the game broke the sum into 60 in part A and 40 in part B and that shows the greed, a feeling that I want more than the other, which actually is a risk for all.

The history, is far removed from the understanding of “Commons” that circulates today. The oxford English Dictionary explains it to be the undivided land belonging to the local community. Now the Jargon has lost its meaning. The assimilation of assets has made it “Tragedy of Commons”. To compete for the limited resources we’ve undergone Homo economicus, which is why diamonds that are of no use are exorbitant, whereas water that is most useful is very cheap.

If corporation were a person, what sort of person would it be? Corporations exhibit many of the characteristics that classifies psychopaths- an antisocial personality disorder. The middle and high income countries not just pollute themselves but also outsource the pollution, costing poor countries more than $ 5 trillion in ecological damage. The other side of the corporations is equally harmful. Companies are turning the society into ‘Dream society’ where the consumers and the customers buy the product a lot because of the allurement and less because of the necessity. We often see products gifted free of cost or with very heavy discounts. The paradox of “Free” corporate give-away, is how much they can enchain us.

What will happen if the Corporates are asked to rule the countries? They will ensure that they make rules that will maximize their profit with minimum taxes on them. That’s what is actually happening.  Many of also have the belief that corporations control the politicians. In the US 76% of the total taxes are paid by the ordinary citizens where as 24% are paid by the corporations. No attempt to put the entire blame on the companies. It’s not that every bad thing that has happened to us is because of the corporations. There is a lot to do with the market behavior, to handle its ups and downs. An example of how market behavior destroys market sentiments is ‘paradox of Thrift’ - In a recession it is rational thing for me is to save money and avoid unnecessary expenses. But if everyone does it, the aggregate level of the demand in the economy falls because no one is buying, making the recession worse, which means we save even more and the vicious cycle sets in.

The poor in the world, especially in the developing countries are struggling to claim a right to have rights. The gap between what people earn and the cost of their freedoms means that, for many of them freedom is just another word for nothing they can afford.

The cardinal rule of genuine democracy is that you have to talk about it. It needs meetings at which people can shape the terms on which value is set. Participating in these meetings isn’t something we learn in schools.  Porto Alegre in Brazil is a town where participatory budgeting was introduced in the late 90’s, which is a policy now implemented in over hundreds cities worldwide. The move allowed citizens to have a great deal more say in what municipal government did. Communities allocate recourses through voting and debate. People administer an annual budget for the construction and services of over $200 mn. No wonder why Brazil was rated the happiest country in the world.

Naomi kleins -The shock doctrine drew inspiration from ways of treating mental illness through electroshock therapy. The walk from electroshock therapy to shock therapy of markets is one that we are still experiencing and one with a painfully long history. Anton’s blindness analogy isn’t a call for an army of neurologists to fix us. In fact there is no cure to the disease of believing you can see, when, in fact you cannot. We’ll never be able to see the world through the glass of market. Armed with this knowledge, we can train ourselves to use other senses, to know the world in a different way. Only after we’ve stopped confabulating about prices will we be on the road to recovery.



Disclaimer

The summary of finance masterpiece by Raj Patel is just an attempt to preserve the good points mentioned by him. In this attempt I’ve gone ahead to use my experiences and observations to make a point.

Vinay Wagh, 
Bulls Eye-Nasik