Economics: 1 step forward, 2...

It was John Maynard Keynes who said that markets can stay wrong longer than you can stay solvent.

Another economist Armen Alchien concluded that in the Western economy, host as it is to an enormous number of people and companies competing, success is more about “the result of fortuitous circumstances”, or luck, rather than any sign of skill or intelligence.

Daniel Kahneman and Vernon Smith won the Nobel Prize in 2002 for establishing that:

- Traditionally, economic theory has relied on the assumption of a "homo œconomicus", whose behavior is governed by self-interest and who is capable of rational decision-making. Economics has also been regarded as a non-experimental science, where researchers – as in astronomy or meteorology – have had to rely exclusively on field data, that is, direct observations of the real world. During the last two decades, however, these views have undergone a transformation. Controlled laboratory experiments have emerged as a vital component of economic research and, in certain instances, experimental results have shown that basic postulates in economic theory should be modified [to take account of people’s common irrational behaviour]. This process has been generated by researchers in two areas: cognitive psychologists who have studied human judgment and decision-making, and experimental economists who have tested economic models in the laboratory. –
see more at: http://nobelprize.org/nobel_prizes/economics/laureates/2002/public.html

Judge Richard Posner, in his book “Law, Pragmatism and Democracy”, claims that: “…reasoning about the most effective means to a given end – instrumental reasoning, the type involved in self-interested action – is a good deal more straightforward than reasoning about ends, the type of reasoning required for determining what is best for society as a whole”.

R.H. Tawney is often quoted from his book “Religion and the Rise of Capitalism” for writing “If, however, economic ambitions are good servants, they are bad masters”. Then he added, “The most obvious facts are the most easily forgotten. Both the existing economic order and too many of the projects advanced for reconstructing it break down through their neglect of the truism that, since even quite common men have souls, no increase in material wealth will compensate for arrangements which insult their self-respect and impair their freedom. A reasonable estimate of economic organization must allow for the fact that, unless industry is to be paralysed by recurrant revolts on the part of outraged human nature, it must satisfy criteria which are not purely economic”.

Like Jello Biafra put it, “for every prohibition you create you also create an underground”.

J.K. Galbraith, Harvard economics Professor, recently wrote that, “… reality is more obscured by social or habitual preferences and personal or group pecuniary advantage in economics and politics than in any other subject”.

Galbraith placed much of the blame for this on what became the title of a booklet he wrote in 2004, “The Economics of Innocent Fraud”. Explaining what he meant by this he went on: “Some of this fraud derives from traditional economics and its teachings and some from the ritual views of economic life. These can strongly support individual and group interest, particularly, as might be expected, that of the more fortunate, articulate and politically prominent in the community, and can achieve the respectability and authority of everyday knowledge.“

He ends the booklet by summarizing: “Civilisation has made great strides over the centuries in science, healthcare, the arts, and most, if not all, economic well-being. But also it has given a priviledged position to the development of weapons and to the threat and reality of war. Mass slaughter has become the ultimate civilized achievement.

The facts of war are inescapable – death and random cruelty, suspension of civilized values, a disordered aftermath. Thus: the human condition and prospect as [is] now supremely evident [mass poverty and starvation…] War remains the decisive human failure”.

At least with these voices, there might not be the need to complain, like Herbert Hoover did, to “please find me a one-armed economist so we will not always hear, “ but on the other hand”’…

“An economist’s guess is as good as anyone else’s” , concluded Will Rogers, who might have elaborated if someone had asked, that a study of economics usually reveals that the best time to buy anything was last year!
- goinghome