In July of 2008, the Environmental Protection Agency (EPA) did something unprecedented in its history: It lowered its official estimated value of an “average American life”, from $8.04 million to $7.22 million.

Why?

Mostly because the EPA performs a cost-benefit analysis when evaluating and creating policy and regulation. To do this, they have to agree on the value of a human life and weigh that value against the cost of regulation. The less a life is worth, the less statistical need exists for regulation.

This and other Bush administration EPA calculations have rubbed some people the wrong way before. Like in 2002, when the EPA decided the value of people over 70 was worth 38% less than those under 70.

The application of seemingly logical economic principles can often make patently absurd or offensive ideas seem, well, logical. Take, for example, an infamous (and shockingly guileless) memo from former chief economist for the World Bank (and current economic adviser to President Obama), Lawrence Summers, in which he says:

“I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that”

(It’s an aside to the topic of the value of life, but in 2005, Summers went on to display more of his mastery of impeccable logic when, as President of Harvard University, speaking at a conference on Diversifying The Science and Engineering Workforce, he suggested that “men’s higher variance in relevant innate abilities” might be a partial explanation for why there were more men than women in high-end science and engineering fields. Outrage ensued, and Summers was forced to step down as President.)

Ill-conceived, false, and harmful suppositions riddle the history of economic theory. Go back to Friedrich August von Hayek, an Austrian-British economist and major influence on free market ideology in the 20th century who was formative for John Maynard Keynes, Margaret Thatcher, Ronald Reagan, and most of the modern neoconservative movement.

Hayek developed a philosophical defense of free market capitalism based purely on individual expressions of self-interest, and with no mechanism or place for altruism or collective problem solving. Hayek’s theories have been used for many things, including the framing of government and “public interest” programs as merely the selfish machinations of governing bureaucrats. Thatcher’s “public choice theory” in England, and later Reagan’s economic policies in the U.S. both relied heavily on Hayek’s rationale.

Nobel Prize-winning economist Amartya Sen explains the pathology of Hayek’s ideas in the form of the following scenario:

“Can you direct me to the railway station?” asks the stranger.

“Certainly,” says the local, pointing in the opposite direction, towards the post office, “and would you post this letter for me on your way?”

“Certainly,” says the stranger, resolving to open it to see if it contains anything worth stealing.

Everyone acting selfishly in order to establish a harmonious social equilibrium. That’s the kernel of Hayek’s thinking. Once considered ludicrous and imbalanced, it won influence in the climate of the Cold War era, alongside other paranoid formulations of human nature and strategems for manipulating it.

Game Theory, developed by clinically certified paranoid schizophrenic mathematician John Nash, is most easily exemplified by a logic problem called The Prisoner’s Dilemma. The game basically demonstrates that selfishness and betrayal, rather than cooperation, are always winning strategies for self-advancement.

Nash won a Nobel Prize for his development of Game Theory and the benefits of a perfectly selfish social equilibrium. Problematically, the theory did not work when tested on real people. In one superb example of this, when the RAND Corporation (a think tank, where much of this was developed) ran several game theory scenarios with the company’s own secretaries, the secretary’s tendency to cooperate with each other, rather than acting selfishly, made results wildly unpredictable and destroyed Nash’s theoretical “equilibrium.”

Of course, you can trace wrongheaded economic logic all the way back to the world’s first actual economist, Thomas Malthus.

Iain Boal, an author and social critic, describes Malthusian logic thusly:

“It’s to subscribe to the view that the fundamental problems humanity faces have their roots in the scarcity of the resources that sustain life, because the world is finite and we are exhausting those resources…Notice how this mirrors the basic assumption of modern economics – choice under scarcity. In his notorious essay “On the Principle of Population,” published in 1798, Malthus asserted that population growth, especially of poor bastards, would inevitably outrun food supply, unless the propertyless were restrained from breeding. He advocated that poor people be crowded together in unhealthy housing, as a way of checking the growth of population. Remember, this is the world’s very first economist we’re talking about here…”

In the linked interview above (on Counterpunch, but originally published in LiP magazine), Boal explains that the scarcities asserted as natural law by Malthus (and many environmentalists today) are, in fact, artificial scarcities created by capitalism. The logic introduced by Malthus formed the basis for a move from a world of common land to an absolutization of private property during the expansion of the British Empire in the 1800s. [That's a lot in one sentence; don't take my word for it, tho': read the link above.]

Malthus’s essay was a direct counter-revolutionary response to an essay by William Godwin entitled “An Enquiry Concerning Political Justice.” The essay was an early anarchist critique of the state and an exploration of viable alternatives to competitive, coercive state power. Malthus, who would eventually become the world’s first paid economist, had apparently once been part of the same radical circles as Godwin. However, Malthus the “disillusioned disciple,” predicted impending doom because of a geometrically rising world-wide population and arithmetically increasing food supply. State economic power, control, and regulation were necessary to stave off disaster for the working and monied classes.

As Godwin pointed out in an eventual rebuttal, for Malthus’s figures to be true, it would require every family to produce an unlikely eight children…

My point with this scattershot exploration of low points in economic theory and practice is to demonstrate how egregiously wrong and abstracted economic theories and valuations can often be. I suppose I also want to illustrate how such theories, sallied forth as theories to describe existing phenomena or so-called “human nature” are often used in a generative fashion, to actually shape and manufacture human thought and behavior.

Thomas Malthus’s theories provided a framework and justification for the global enclosure of the commons based on the seemingly rational idea that there simply wasn’t enough to go around, and that the ever-breeding poor, left unrestrained, would devour us all, and that this was only a rational response to the excesses of “human nature.” Further economic rationales for selfishness were advanced by theorists like Hayek and Nash, despite the fact that their theories did not correlate to actual observable, measurable human nature. (Recall the example of the RAND secretaries.)

Accurately correlating to observable behavior is supposed to be one of the truer measures of the validity of any scientific theory. Yet in the case of Nash’s Nobel prize-winning work with game theory, this basic measure was apparently not necessary. Nor was such a basic measure of validity needed, by extension, for an entire way of thinking about and conceiving of so-called “human nature” to be used as the justification for an entire raft of economic policies.

Thus, manifest illogic can seem impeccably logical to the likes of economic policy-setters like Lawrence Summers, trapped as they are within abstracted market-defined notions of value. It must seem only logical to some people in the Bush Administration and the EPA that a human life has a certain measurable monetary value, and that certain policy implications unfold from that value.

John Maynard Keynes, the founder of modern macroeconomics (and a big advocate of eugenics), got to the heart of the matter with a telling statement about the logic of capitalism, which is essentially what we’re talking about in all of this:

“Capitalism,” Keynes wrote, “is the astounding belief that the wickedest of men will do the wickedest of things for the greatest good of everyone.”