About a book and a paper…
The economics I encountered (in what were considered to be humanities courses) at MIT presented theories of productive behavior illustrated with graphs of relationships between supply and demand, prices, utilities, consumer surpluses, deadweight losses, and so on. These are elementary parts of the apparatus of neoclassical economics, a soaring achievement of the human intellect that delivers both powerful insights and deep misconceptions about the nature of the world.
Traditional economics assumes that rewarding a behavior will encourage it. A good model for firms, perhaps, but often exactly wrong for individuals. In particular, it prescribes the wrong way to manage productive creativity.
Traditional economic models also fail when individuals can profit enormously from fraud that destroys the corporation they control. Analyzing this as “an agency problem” or a problem of “asymmetric information” doesn’t capture the nature and scope of creative criminality.
Productive creativity
In Drive: The Surprising Truth About What Motivates Us, Daniel Pink explores the conflicts between conventional reward systems and the internal motivations that drive creative work and weave the fabric of social life. The research is fascinating, and buttressed by real-world experience. The book delivers insights from modern behavioral economics, together with advice and examples of how businesses can sustain rather than destroy the inner drive that sustains creative work and social bonds.
This requires a delicate touch, recognizing that paying for results can transmute what people enjoy doing into grudging work that produces results of the wrong kind.
You can spend money in a loving relationship, but money can’t buy you love.
Drive provides a good and enjoyable overview of advances in knowledge that can tip the balance between success and failure in business, shift the balance of satisfaction and misery in life, and change thinking about social policy.
Creative criminality
The math and graphs of Econ 101 also omit other aspects of incentives and creativity. There is, I think, good evidence for a disconnect between reality and the economic assumptions behind widespread regulatory policies:
A criminogenic environment is one that has strong positive incentives to engage in crime. While economists stress incentive structures, economics ignores criminogenic environments. … the neo-classical economic theory of corporate law is bad economics because it is bad criminology.1”
1. WK Black, “Reexamining the Law and Economics Theory of Corporate Governance.”
Challenge. Vol. 46, No. 2, March/April: 22-40 (2003).
The above is from a 2005 paper by William K. Black. What I found striking about its analysis of the causes of financial collapse is that 2005 preceded 2008.
You may dislike reading it as much as I did.
See also:
Reviews of related books
- Predictably Irrational
- The Paradox of Choice
- Nudging Toward a Better Future
- How many minds produce knowledge (and how they don’t)
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