Principles of Nevinomics

“…there is no explanation of human choice applicable to all periods and all societies.” – Nevin, 1989

“One swallow does not make a summer,

neither does one fine day;

similarly one day or brief time of happiness does not make a person entirely happy.”

―Aristotle, The Nichomachean Ethics

4 Categories, 4 Principles, 1 Objective:

Practical economics to build a flourishing world

Nevinomics is a series of economic writings that explore the most fundamental issues in economics and societies in order to re-conceptualize old approaches and better express the relationship between economic theory and economic reality. The practical objective of Nevinomics is to suggest steps and policies that can create better and more resilient economies, stronger societies and, most critically, better lives for individuals.

The starting point is that we can do a much better job of managing the economy. Current economic structures and policies – often based on prevailing neoclassical orthodoxy from academic Economics – lead to an extraordinary waste of human potential, needless suffering (particularly unemployment and under-employment), and a tremendous gap between how the economy does perform and how it could perform. We are in a period – particularly after the Great Financial Crisis – in which we have accepted a level of poor economic performance that Nevinomics categorically rejects. Nevinomics asserts that we can do much, much better.

Nevinomics is based on 4 core Principles:

1. Economics is an empirical discipline. We are not going to do a better job of managing the economy unless we start from a foundation of how the economy actually functions. This requires careful observation about what really happens in the world, not a theoretical model of how an economy is supposed to work. It also challenges the superficial conclusions (e.g. unrestricted capital flows are always beneficial) that emanate from theoretical economics and subjects these to rigorous testing of the results they achieve.

2. The economy is a human construct and we can set the rules. There is a vast range of economic policies and structures that we can choose. Different sets of choices set the economy on widely differing paths with hugely divergent outcomes. Getting this construct right is the most urgent task of policy makers.

3. The rules we set – how we construct the economy – depends on what we are trying to accomplish. Different economic policies and legal and economic structures lead to different social and economic outcomes. As a society, we cannot make sensible choices around these rules without an explicit perspective on what society’s objectives are, including how much emphasis we will place on non-economic criteria such as longevity, health outcomes, educational attainments, freedom and liberties, human rights, and income inequality, as well as traditional economic measures such as GDP and wealth.

4. To arrive at the best rules we can to achieve society’s objectives, we need to take account of Realities about people. Some of the most important Realities include:

      a. Development and growth are at the core of the human experience and with growth come changes in both what we value and what we want, as a reflection of those values.

        b. We live in a world of tremendous uncertainty, and rapid increases in longevity are increasing this uncertainty exponentially as decisions made at 20 or 30 years of age will have ramifications 20, 30, 50, perhaps 80 years later.

        c. We make decisions with incomplete information and with limited rationality, and our options are bounded not only by external circumstances, but also by each individual’s ability to conceive of their opportunity set.

         d. Some of our most important decisions – education, career, marriage – are made only once or a few times, but affect our lives both more broadly and with a stronger degree of finality than most other decisions, thus having an incalculable impact on our lives. This Reality has never really been absorbed by mainstream Economics but has profound consequences for how we should be structuring our economy. Specifically, to create a society that Flourishes in light of this Reality requires that the economic system reduces the risk of such decisions, creates options and flexibility for people, permits failures and redemption, and does not lock individuals into paths over which they have no control. It would not permit, for example, the current US system in which unsustainable student debt cannot be discharged in bankruptcy, essentially creating a situation in which the individual loses the ability to reset.¹⁾Interestingly, this bubble in student debt in the US (which had reached 1.2 Trillion in 2013) also illustrates the impact of Systems Thinking. While for the individual university and loan provider, the explosion in availability and use of student debt is a boon, at a systemic level, this debt overhang is having a strong negative effect on household formation, house purchasing, and durable goods consumption as young adults are delayed entering full adult lives by the need to repay the student debt. See Chris Denhart. “How The $1.2 Trillion College Debt Crisis Is Crippling Students, Parents And The Economy,” Forbes Special Features, July 7, 2013. Accessed on November 18, 2013. Forbes Article

Of course, the obvious question arising from Nevinomics’ 4 Principles is: what should we be trying to accomplish?

Nevinomics’ starting point is that the purpose of the economic system is to create an environment in which individual Flourishing is maximized.

This concept is explored in depth here: Flourishing and Flourishing: An Expansion.

Nevinomics is organized as a series of articles that explore economic and social issues based on the Principles and the objective of maximizing Flourishing. The articles are organized into 4 Categories of Economic Thinking (Categories Descriptions):

1. Social and Individual Objectives

2. Systems Thinking

3. Realities

4. Management of the Economy and Public Policy

Collectively, understanding deeply the issues in these 4 categories will finally give sufficient insight and understanding to build an economy that is much closer to delivering what we all know an economy should be delivering to our societies.