The heresies of an economist.
Almost everyone of a certain age will recognize the name of economist John Kenneth Galbraith. A generation ago, almost everyone had either read him or heard him or heard of him and his more famous sayings, real and apocryphal. But since the free market revolution of the 1980s, not everyone is sure that Galbraith was an economist.
His "The Affluent Society", published in 1958, was not just a best-seller on economics but a seminal influence on how Americans looked at their changing society: advertising-driven consumerism run amok, focused more on the production of unnecessary goods than on providing the social services essential to the community. "Affluent Society" is said to have greatly influenced the architects of the Great Society of the 1960s.
Whether Galbraith was a full-fledged Keynesian economist or just an apologist for the modern welfare state is irrelevant, at least to me. What draws me to the writer of "Affluent Society" is that Galbraith liked roughing up the sacred cows of his fellow economists. Like Thorstein Veblen, another economist and social critic never accepted by the brethren, Galbraith had a subversive belief that the technical analyses and mathematical models of orthodox economists missed the nuances of real-life economics. To Galbraith, standard economic wisdom was a hoax solemnly sold by cardigan-clad opportunists to credulous true believers.
And after visiting the fun-house of real estate economics, all I can say is "Amen, Brother Galbraith".
Economists are revered because they fill a deep-seated need. According to Galbraith, "economic like other social life does not conform to a simple and coherent pattern. On the contrary, it often seems incoherent, inchoate and intellectually frustrating. But one must have an explanation or interpretation of economic behavior (italics mine). Neither man's curiosity nor his inherent ego allows him to remain contentedly oblivious to anything that is so close to his life." The uncritical consumer of real estate economics believes he's "got it all figured out": the turning points of markets, the fallacies of the industry itself.
Yet the economist is as hard to pin down on details as the Delphic Oracle he replaces since "because economic and social phenomena are so forbidding, or at least so seem, and because they yield few hard tests of what exists and what does not, they afford to the individual a luxury not given by physical phenomena. Within a considerable range, he is permitted to believe what he pleases. He may hold whatever view of this world he finds most agreeable or otherwise to his taste." In other words, an economist gets to make it up as he goes along and some group, probably his peers, will salute it as long as it falls into some orthodox camp.
Because this laissez-faire approach to truth makes economics as rigorous a science as fortune telling, "in the interpretation of all social life, there is a persistent and never-ending competition between what is right and what is merely acceptable. In this competition, while a strategic advantage lies with what exists, all tactical advantage is with the acceptable. Audiences of all kinds most applaud what they like best. And in social comment, the test of audience approval, far more than the test of truth, comes to influence comment. The speaker or writer who addresses his audience with the proclaimed intent of telling the hard, shocking facts invariably goes on to expound what the audience most wants to hear (again, italics mine)."
When it comes to telling the "hard shocking facts" of the real estate marketplace, prevailing theory inevitably retreats to an indefensible position I call "ju-ju economics": when the mathematical models fail, as they must, economists compensate with a heavy dose of conspiracy theory and a pre-scientific reliance on inexplicable elemental forces that would embarrass a caveman.
One tenet of the up-to-date real estate economist is that the industry he follows from a safe distance is uncompetitive. If he was within the industry, he'd realize quickly just how competitive real estate is (and leave it just as quickly). But "few matters having to do with economic life have been so much misunderstood as the problem of economic insecurity...In the model of the competitive society, such insecurity was inherent...However, this insecurity, valuable though it seemed in principal, was cherished almost exclusively either in the second person or in the abstract. Its need was thought urgent for inspiring the efforts of other persons or people in general. It seldom seemed vital for the individual himself. Restraints on competition and the free movement of prices, the principal source of uncertainty to business firms, have been principally deplored by university professors on lifetime appointments. Their security of tenure is deemed essential for fruitful and unremitting thought."
Also deemed essential by the real estate economist is his aloofness from the industry he presumes to know. I remember how surprised I was to find that none of the real estate economists I ran across had experience in real estate. Were there no limits to academic hubris if it had them believing they could know the deepest secrets of a field in which they had no experience? Most of them sounded like they'd never even bought a house. Galbraith once again explains: "Once, students (of economics) were attracted by the seeming urgency of economic problems and by a sense of their mission to solve them. Now the best come to economics for the opportunity it provides to exercise arcane mathematical skills."
As for tenure, conventional economic wisdom passing as sound economic theory has its own life-time appointment, not only within the halls of academe but also in the media channels and among uncritical consumers of media, because "economic and social behavior are complex and mentally tiring. Therefore we adhere, as though to a raft, to those ideas which represent our understanding...Familiarity may breed contempt in some areas of human behavior, but in the field of social ideas it is the touchstone of acceptability...I shall refer to these ideas henceforth as the conventional wisdom."
Ah yes, the conventional wisdom of the academic, keeping to the straight and narrow path of peer-reviewed group-think. "The shortcomings of economics are not original error but uncorrected obsolescence. The obsolescence has occurred because what is convenient has become sacrosanct." Conventional wisdom is convenient not only for the economist-by-the-numbers but for the journalist with space to fill and no experience or insight with which to fill it. On the Internet, conventional wisdom goes by "collective experience", the thin yet gaudy material of the blogger with an axe to grind and an ego to massage.
Yesterday's error is today's widely-accepted truth. "The conventional wisdom having been made more or less identical with sound scholarship, its position is virtually impregnable. The skeptic is disqualified by his very tendency to go brashly from the old to the new. Were he a sound scholar, he would remain with the conventional wisdom."
In other words, get used to it.