I know I ask a lot of my readers. This column is a place for unconventional thought. New ideas are presented, and new perspectives on conventional wisdom are explored. These concepts are sometimes difficult to absorb, and rarely easy to apply. Let’s understand why. 

The great Canadian economist John Kenneth Galbraith popularized the term conventional wisdom. He wasn’t trying to be complimentary. In his 1958 book The Affluent Society, the Harvard professor chastised traditional economics as refusing to consider facts that do not fit neatly into the theories we spin. Like humankind in general, economists subscribe to an orthodoxy that has prevailed since the late 19th century. 

In the first century of economic thinking, proponents of my study were called political economists. They recognized a role to describe not only the way markets work but also the ways they don’t and the other mechanisms humans employ to meet our needs. Economics is a valuable tool to help determine how one can rationally meet these needs. 

We do so hundreds of times per day, often so routinely that we don’t realize it. To go to the fridge to get a glass of water or determine whether a walk with the dog will be a long one or a short jaunt are all economic decisions that weigh their benefits with the effort or sacrifice we must devote to them. On a given day I may interact with markets perhaps not at all while at home or perhaps half a dozen times if traveling. But, I make decisions constantly, and often with little thought as we are programmed to know intuitively whether something is worth our while in most cases. 

In that period when we transitioned from political economy to classical economics, almost all attention was diverted to market transactions. These are a very different set of interactions that are entirely voluntary and narrow in scope. This is because they are all arms-length. When I plug in my car at a charging station, I am not worrying about whether the vendor’s feelings will be hurt if next time I charge somewhere else. My economic decisions are narrow and ruthlessly self-interested typically, just as are the motives of those who sell things to me. There’s no politics in those economic decisions. 

That’s not to say that there is no politics in markets. One of the biggest costs any of us face is the displacement of change. We see humans go through considerable lengths to avoid change and maintain a status-quo that works well for us. This is not to say that change is not good. Indeed, as an economist, if I look around, I can see potential improvements in just about every institution, market, or accepted convention. Some of these changes are more risky than others since change inevitably requires us to modify familiar patterns with sometimes unpredictable results. 

Economics is actually a good tool to analyze the benefits, costs, and uncertainties of change, but such innovation faces one paramount problem. Change inevitably shifts patterns of exchange, be they formal and through markets or informal in the decisions we make that affect those around us. 

The market changes must be voluntary. I cannot redefine a market transaction unilaterally because it requires acceptance of the other side of the exchange. They will only go along with what I consider an improvement if it also yields an improvement for them. Even if the cost to them is minor, they will not go along with something that may nonetheless benefit me substantially. 

Economists finesse this problem through the creation of the Pareto optimality principle. Transactions, or change, should occur if the benefits to those who come out ahead exceed the costs to those who may be made worse off following the change. Sometimes markets can adjust prices to, paraphrasing the words of the Godfather, “make an offer you can’t refuse.”

But, with the myriad other interactions we make, there is either no avenue or no acceptance for such an improvement. You have all been on a flight that gets in late, with some passengers facing a very tight connection. Sometimes the flight attendant asks us all to be seated to let only those through who must get on another plane in the next fifteen minutes. For most everybody on the flight, there is absolutely no cost at all to remain seated for one extra minute, but for those facing a tight connection, it may mean a day or two more at an airport and hundreds of dollars of expenses. Invariably many people not in a hurry get up and block the aisle anyway. So much for Pareto optimality. 

The greater economic power one has, the greater potency they can exercise in keeping economic relationships precisely where they want them to remain. Corporations lobby politicians to keep laws in place or change laws for their liking. Unions prevent cost saving or quality enhancing improvements for fear some jobs will be lost. Consumers are brainwashed by ads to do things in the interest of those selling us products, and politicians fear the wrath of populist movements and go along with what appears popular rather than what creates the most long term value. 

Hence the comments from the Australian minister of finance. The more one has, the more one has to lose. The corollary from Kris Kristopherson in Me and Maggie McGee  is “freedom’s just another word for nothing left to lose.” 

There is no easy fix for resistance to new ideas and change. While markets no longer even provide us with the majority of our goods and services in modern mixed economies, it is very difficult to get some markets to act in our collective long term best interest. We know it would be wise for us to transition to more sustainable and environmentally less damaging energy sources, but that requires the cooperation and investment of fossil fuel companies who already own well more oil under the ground than we will need if we begin to make the transitions scientists call for. They cannot be forced to change their pattern of investments and write off all that paper wealth, at least if politicians want to be reelected. 

Beyond that, for the other transactions we perform, governments tell individuals what to do at their peril, even if it is in our best interest. This was the avenue for political economists at one time - to prescribe policies that will improve our lot, even if it causes displacement for some of us. But, those days of political economy are long gone. Now, it is safer for economists to leave to our theologians and demagogues their prescriptions for a more harmonious and productive world.