Why most economic models are doomed from the outset

History records many well conceived and apparently logical grand plans for the betterment of mankind. Sadly such ideas almost always fail. Why is this? One possibility is that they fail precisely because they are logical.

The dictates of logic require the existence of universally applicable laws. But humans, unlike atoms, are not consistent enough in their affinities for such laws to hold very broadly.

For example we are not remotely logical in whom we choose to help. Will wealthy Germans help poorer Germans? Yup. Greeks, however? No chance. Utilitarianism makes perfect sense — right up to the point you try to apply it.

As Orwell said, ‘To an ordinary human being, love means nothing if it does not mean loving some people more than others.’

In his new book Skin in the Game, Nassim Taleb includes what is perhaps the most interesting quotation on politics I have ever read. It is by Vincent Graham, explaining how even his political preferences change with scale and context. ‘At the federal level I am a Libertarian. At the state level, I am a Republican. At the town level, I am a Democrat. In my family I am a Socialist. And with my dog I am a Marxist — from each according to his abilities, to each according to his needs.’

The drive to be rational has led people to seek to find political and economic laws which are akin to the laws of physics — universal, unchanging over time and applicable at any scale. Experts love such universal principles — as they allow them confidently to pronounce on things of which they have no direct experience.

In reality, it is often context or scale which is the most important thing in determining how people think, feel and act.