I've been watching Robert Reich's lectures for his final class on Wealth and Poverty at UC Berkeley. In his first lecture, he presented his class with an economic/psychological experiment I had seen before:
Someone offers you $1,000 to split with another person. If the person accepts, you both keep the money. If the person rejects the split, nobody gets any money.
Perhaps because he did not present it quite as clearly as I had seen before, only saying that you "split the money," it honestly, genuinely, simply did not occur to me until he polled the class that one could choose to split the money unequally. If I were the person proposing the split, I would, without pausing to consider, offer the other person exactly half. But the idea behind the experiment is that any smart "rational economic actor" would attempt to maximize the amount that he keeps, making a calculated gamble on how little the other person would accept. The truly rational choice for the second person is to take ANY amount of the split because in ANY case, he would be better off with even as little as $1.00 more than he had before the experiment. In reality, people are NOT rational economic actors.
I know. Shocking.
Someone actually won the Nobel Prize in Economics for coming up with that revelation in economic modeling.
In related news, economists are often morons.
But I digress.
Prof. Reich hinted that the "problem" with the "Pareto improvement" in question, a situation where at least one person benefits and no one loses out, is that when the benefits are extremely one-sided, it violates an innate sense of fairness that most people have. And the decidedly NOT rational economic actor, when offered a pittance in the face of someone else benefitting greatly, says fuck that noise, and lets both parties lose out.
My own failure to grasp the gist of the economic thought experiment from the beginning leads me to a question that would have me raising my hand every time Prof. Reich mentions the representatives of capital. WHY is it treated as so perfectly, stupidly evident that the overriding goal will always be to maximize profit? And in reality, not strictly profit, or even "earnings beyond interest, taxation, depreciation, and amortization," but shareholder value? That is the bedrock of all economic assumptions in our supposed "free market" system, and it is so foreign to me.
If I owned a company, I cannot imagine a situation in which the goal would be to make the most money possibly at any cost to my employees, my competitors, the environment, the very social fabric of our city, state, country, world. I would feel positively evil if my company were polluting the water and air, if I were ruthlessly running my competitors out of business to create a monopoly in which I could jack up prices, if I could afford several yachts while the people doing the work that made the business run could barely afford their rent, if I were helping to create a world of Gilded Age-level inequality of wealth and the inevitable social and political instability that must follow.
And there are at least a handful of business leaders who have come to the conclusion that maximizing profit is not the be-all and end-all of corporation governance. Mark Cuban's Cost Plus Drug Company's mission is to make a REASONABLE profit on generic drugs, a markup of some moderate fixed percentage above the cost of manufacturing and distributing the medications, rather than charging as much as the market will bear for something with a relatively (or entirely in the case of insulin) inelastic demand.
But it is a terrible tragedy and the cause of much suffering that so many of the people in charge of the world are willing to burn it down in order to maximize shareholder value.
