Richard Thaler's 2017 Nobel Economics Prize was overdue. He has been gnawing away at overheated neo-liberal economic philosophy in the same way that Thomas Malthus's population thesis had done to classical economics two centuries or so ago, or more recently, E. F. Schumacher's 'dehumanising' effects of a market economy's inevitable 'gigantism'. Mind you, John Maynard Keynes and other reformers/fine-tuners of market economics like them stepped in only when summoned by an economic crisis, in his case, the 1930s depression, which he salvaged through the government intervening with deficit spending. Yet, it is confronting the bull before, or better yet, when it is truly raging that raises eyebrows, much as the a posteriori input of Keynes and his type raised desperately-needed relief when it was needed the most.
It is not just that the rational economic impulse so overwhelms our senses with immediate gratification of our material desires that we stagger to look elsewhere for a more reasonable pathway: it may simply be that rational economic impulses may be tapping the wrong buttons at the wrong time. Adam Smith's escalator of progress is clearly there for the undaunted should anyone still be desirous; but smelling the flowers along the way to prosperity adds a flavour the pure market-economy thrust misses. Citizens may not end up as the postulated millionaire (and quite honestly, more millionaires have walked a predominantly market-economy pathway to their success), but to savour all that life offers, its primroses and its warts, with a meaningful income and no debt may find more buyers in the market than rational behaviour.
Tellingly, we are not as rational as philosophers would have us belief. True, we will maximise returns in whatever we do whenever we can, but heck, especially when no one is looking, better yet, when they are actually looking. The tendency to defect and do something completely outside the rational box is so prevalent that we take it too much for granted to analyse: the rickshaw-puller needs every paisa for his mean (oftentimes the only one in the day), but he can always cough up the surprising paisa or two for a health-corroding biri; the same goes for the college student who is being fed all the wisdom that it takes to become an intellectual star in class, but whose weakness to go with his/her friends to an impromptu party on the eve of his/her final examination or job interview still characterises university life the world over. True, we have the rational instinct to be the market-place maximising participant, but we also go to the market with a social impulse to be popular, or a political instinct to exploit a windfall of an opportunity. Oftentimes letting the strongest of these forces prevail chips away at any of the associated edifices, whether it is the economic man, socialising beast, or the instinctual politician. This is where Thaler comes in. Because of our foibles, he is determined to not let the economic rational man prevail. His nudge economics captures the rawness within us as opposed to the cultivated that Smith's liberalism speaks to. We can dance our way to the market, or still be sipping Starbucks latte when we should be present for the ringing Dow Jones opening bell each morning, and all without any loss. Our market gains may not be as much as the rational-minded next-door neighbours, but when the non-market benefits are added, the aggregate gain may speak louder. In short, Thaler's thesis anchors the typical human's behaviour; and even though rational choice also reflects human behaviour, it is not by chance that behavioural economics looks to Thaler than to Smith, to human impulses than Dow Jones fluctuations.
His thesis resonates more widely than rational choice the world over. If we were all rationally-driven, Donald J. Trump's costly 'America First' option would have been nipped in the bud, Brexit would never even have been coined if residents in the very island where rational economic policy-making has been practised the longest; South Korea's ex-president, Park Geun-hye, would not be behind bars; and so forth.
Sometimes this maximising instinct also gets misplaced, worsening outcomes. North Korean's Kim Jong-un have maximised his nuclear capabilities, but the economic consequences may expose the terribly costly mistake. China, too, may have scooped up more from exports faster than any other country has wanted to or a market economy would recommend, but the protectionist consequences this has generated for over a generation in importing countries could come back to haunt it later for far, far longer in the future. In short, market-economics may be accounting for lot less of evolving, ongoing, and forthcoming actions, beliefs, and expectations than may be the case. In that sense, with their wider and deeper relevance to human economic behaviour, Thaler's contributions may be a better subject to place under the microscope than many others.
If rational choices by rationally-minded citizens produce business cycles (characterised by recessions and depressions, indebtedness, and a spiralling luxury industry), instead of that infinitely progressing escalation, the nudging alternative deserves to be heard and recognised, as much in classrooms as in policy-making. It explains more of what we humans typically do.
Modern-age prosperity has stemmed more often from a market-based economic policy approach than not: note how the very successful import-substitution Latin economies of the 1950s and 1960s, as well as the export-led Asian economies of the same time led by Japan are all struggling now because of an improper or inadequate market-economy embrace. Now that they have no choice but to 'reform' and 'restructure' their economies to survive in the neo-liberal international market paradoxically depicts the twin-edged essence of a market economy. It has proven to be a better choice than many other policy-approaches relying upon varying degrees of protectionism; but to interpret it as the final form and dominant flow of economic life would be a grave mistake in an era of climbing inequalities and asymmetries.
Very much like its political counterpart, that is, democracy, neo-liberalism offers a lot and carries a higher market-value than competing philosophies. But very much like democracy sliding into populism, neo-liberalism also carries the seeds of decay from one-track-mindedness. Nudge economics offers the kind of halfway house moving in the same directions as neo-liberalism, but with a human face. Democracy needs it own Thaler counterpart, just as nudge economics needs more policy-making believers.
Dr. Imtiaz A. Hussain is Professor & Head of the newly-built Department of Global Studies & Governance at Independent University, Bangladesh.