Trumping Arrow

Late in February the death was announced, at a great age, of the much-honoured Romanian-American Economist Kenneth Arrow. This death marks a significant break-point in the history of Economics. Arrow was one of the very first people to be awarded the pseudo-Nobel Prize [known as the Nobel Memorial Prize] that was funded by Scandinavian bankers to lend verisimilitude to Economics, to support the delusion that the subject could be viewed as a 'science' comparable with Physics or Medical Sciences.

With the noblest of intentions, Arrow's life's work was consistent with this ambition: to present Economics as a cogent system of theory and supporting data that should enable humanity to construct economic entities that would operate efficiently in space and time, as steam engines and spacecraft do.

From beginning to end of his career, Arrow cited and supported the pretensions of Adam Smith to be the founder of a fundamental economic science. A century before Smith produced his most-cited book in 1776, the precursors of Isaac Newton had collated their observation of stars, satellites of stars [planets], satellites of planets [moons] and other classifiable heavenly bodies with sufficient clarity for Newton's exceptional intellect to be able to provide a wholly new perception to this data by demonstrating that the universal force of gravity enabled the material universe to have coherence that humans could recognise and analyse.  

Arrow appreciated how [in his own generation] Adam Smith had recognised that most of the time most of the produce that emerges from the human economy is bought by those who have a use for it: who will consume it, save it or otherwise dispose of it according to their choice. Smith sought for an economic equivalent of gravity, and claimed to have found it in the assumed universal force of self-interest. Smith said that the butcher does not buy sheep and cattle, kill them, work on the carcasses, and hang the meat in his shop because he wants selflessly to benefit the human race: on the contrary, his self-interest has led him to learn the skills of butchery, to buy or to rent premises for his shop, to raise the money with which to buy his cleavers and knives, and to buy the animals with the intention of selling meat to make a living for himself and his family [and ideally to make sufficient profit to expand his business and improve his home].

It is demonstrably the case that over the whole economic system people are making their own selfish decisions, which reciprocally enable most of humanity most of the time to have enough to live on. Smith asserted that the natural operation of the economy would work beneficially most of the time; and two hundred years later Arrow deployed twentieth-century mathematics to try to show how that theory might work out. This contribution to the 'pure science' of Economics greatly influenced generations of Economists between 1960 and February, 2017, the time of Arrow's death: many of them worked to extend and improve the mathematical modelling that purported to bolster the theory, while other Economists worked to persuade politicians and the public that the state [national and local government] should - wherever possible - remove any interventions in trade or industry and leave market forces to control the economy.

But over the period covered by Arrow's long career, almost exactly the same period, it was becoming clear that the progressive freeing of the economy from government controls, and from behavioural constraints [as moral attitudes were relaxed], did not benefit everybody. Progressively through the nineteen seventies, eighties and nineties areas of 'deprivation' emerged in the USA and Europe. The uplands of capitalism were more fruitful and more glamorous than ever; but rustbelts and depressed areas were obvious by the time of the millennium. Finance capitalism was granted unprecedented freedom between the mid-eighties and the mid-noughties, and it created the gigantic crash of 2007-8. The state took back control of the system, and poured massive resources into it: and ten years on from the crisis, nobody has the faintest idea how to unscramble the resulting situation. The economy is now less like the system that Arrow modeled than it has been anytime since Adam Smith foreshadowed the concept.

And now we have President Trump, who came into office a month before Arrow died: promising a new era of active state involvement in most aspects of the economy and attracting a new sort of mass support from the political grassroots. The fundamental discontinuity between popular politics and perfectionist economic theory has starkly been exposed, and will increasingly inform, confuse and exacerbate the debate that is being led byTrump, the Brexiteers and the various 'populists' emergent in Europe, the Americas and Asia. We live in truly interesting times!