Economics- Alive or Dead? A dismal science? Debate

Economics – Dead or Alive? A dismal science? A call to debate

We are entering the biggest crisis that probably man has ever encountered. It is now accepted that it is the worst that the world has suffered since the Second World War, and probably the worst since the 1930s depression, but we still have not seen the bottom and nobody knows for sure where the bottom is. ‘Anticipation of change is speculation. It is not known when the change will happen or by how much. The longer it takes, the more pressure there is for the change. Big changes cannot wait for the consumer to change; they have to be absolutely controlled by Governments’. So far there is no control and therefore recovery is pure speculation. It started with a financial crisis that is now turning into an economic crisis that could well cause more than 20% unemployment and widespread anarchy. The financial crisis was caused by the mismatching of assets and liabilities and the under assessment of risk; an area that should be the responsibility of actuaries, not economists, accountants, bankers or politicians.
The economies are going into this ‘black economic hole’ blind; being led and controlled by politicians, bankers and economists. I use the word blind because the politicians and the bankers both depend on the understanding of the economics but the theories have been shown to be incompetent at best, and wrong at worst.
They are clutching at economic straws. Who should we turn to in this moment of need? Keynes, Smith, Galbraith, Milton Friedman, Von Hayek? Now the big debate is beginning over the 1930s. Was it Milton Friedman or Von Hayek that had the explanations and the solutions? But these economists were nearly 100 years ago, and the others considerably older. Hasn’t the world changed since then?
What have been the effects of computerization, of the internet, of the mobile phone, of the evolution in banking, of financial deregulation, of Bretton Woods, of the derivative market, of the television, of vaccines and pharmaceuticals, of longevity, of nanotechnology, of food preservation, of genetic engineering, of widespread house ownership, of the nuclear bomb, of the car industry, of aeroplanes?
By continuing to accept the theories of the great economists of the past aren’t we saying that the above have had no significant impact on the current economics?
Yes, the past understanding is very important, and Adam Smith’s conclusion that ‘the house has no economic value’ is possibly the most important revelation appropriate to today’s economies but even this needs to be interpreted differently. A house has an economic value when there is a growing population and that population is needed for economic growth, but this ‘economic’ house is for accommodation and not an object of the fineries of life. The 1st world, that has stopped expanding, has therefore put the majority of its money in a sector that has no economic value. There should also be an addition to Smith’s revelation in that if the population is decreasing, and there is little or no economic growth, then those houses of finery have negative economic values due to the costs of maintenance, heating and light, and security.
What would Adam Smith have said about the economic value of a motor car, especially a fine one such as a Porsche or Ferrari? I am sure he would be turning in his grave and likening the current situation of the 1st world to the fall of the Roman Empire.
Is there a correlation between fine buildings and the fall of empires? That the empires had too much money and control of others for their own good, and overconfidence, and this led to their ultimate downfalls? Could this be said now in respect of the houses and fineries of the 1st world?
Keynes revelation in respect of the velocity of circulation of money and the effect of confidence, like Adam Smith’s revelation, is extremely important to today’s economy but this also lacks the modern day definition. According to the economists, the velocity of circulation of money has been fairly constant or reducing but the real interpretation is that there has been a dramatic increase. The reason for the difference is that since financial deregulation the majority of the new money has been destined for the very slow property sector, even though the velocity within this sector had increased significantly. The velocity of ‘street’ money is many times per annum but the velocity of buying and selling houses is once every few years.
Is confidence the base of economics? Is confidence responsible for how quick we spend our money and on what we spend it on? Is confidence responsible for the amount of money available from finance? Confidence is, however, not a natural state. It takes a lot of activity or time to gain and can be lost in seconds and therefore it is responsible for many of the paradigm shifts in economic behaviour. Over confidence is always followed by disconfidence. Confidence does not have to be in general, it can be specific and applied to one sector of the economy and not to another. So have we lost specific confidence or general confidence? Is a depression caused by a loss of general confidence in everything whereas a recession is caused by a majority loss of specific confidences.
Isn’t confidence psychology?
Isn’t psychology affected by the media?
When there is an increase in confidence then a trend is produced. That confidence or trend does not have to be general, it can be related to a specific sector of the economy. Once a trend is formed, isn’t that trend mathematical?
For the rapidly increasing numbers of people that now believe in the conspiracy theory, in respect of the financiers that control the world, could it be that it was known all the time what caused the 1930s depression and that it has been kept a secret from us, because it was them?
Could the cause have been the over optimism, or over confidence, of the bankers and financiers followed by disconfidence? Did the conspirators cause it intentionally?
Did they organise the depression to get more control over the economies because too many other people were getting in on the act and they were losing control? Did they organise this one? Has it got out of control?

The macroeconomists cannot see the trees for the woods, and the microeconomists cannot see the woods for the trees, but surely those trees are not homogeneous and some have different characteristics in respect of speed of growing and strength- equivalent to velocity of circulation and economic impact. Mini sectors with similar velocities of circulation, and economic and financial multipliers, are the ones that show the real movements and are assessable. Monetarism (mathematics), when applied to these sectors, works absolutely.

My conclusions are therefore that economics is a science in motion, that it is dependent on the financial markets, not just stock markets, which are the leading indicators, that it is sectoral, that it is dependent upon psychology and hence the media, that it is mathematical and dependent on risk, and that once understood; it can be controlled.

‘It’s the economics, stupid’

Macroeconomics is dead. Microeconomics never entered the reckoning. Minieconomics, an economics theory produced by an actuary, not an economist, is alive and well, and very clear. Depression Economic Plans should be designed by the psychologists and the actuaries and enforced by the Governments, not the orthodox economists.

I rest my case.

Put your case on

Copyright 2009
April 14th 2009