Economics vs.The Crime of Our Time

The economic indicators and equations are no longer with us. Economists have not yet raised the gaze of the “dark side of economic fundamentals”- the criminal and dodgy side of economics.

Economic Modeling vs. Crime of Our Time: Where Does the Economic Darkness Come From?

The financial crisis we live in now is the outcome of the Dark Age of Economics of our time- was the conclusion after reading and writing (here) about the book by Farmer R.E.A “How economy works: Confidence, Crashes and Self-Fulfilling Prophecies”. The unreliability of economic thoughts is to blame for all the political, banking and leading economists’ sins in the 30’s, the 70’s and the 08-09’s financial crisis. At the same time, crisis and shocks are desirable- they transform our economic thoughts (hopefully for the better), the time of crisis is the time for changes. All this create economic uncertainly, which makes the economic recovery slower than desired.

In my next blog I will reflect on the following: where does the source of the “darkness” of economics come from? Where are limits of economic modeling? And what is to be fixed to recover/transform the economy?

Different schools of thinking - different policies: Who is right and who is wrong?

Classical and Keynesian economics are the two main economy schools, which in turn, form different understandings of how the economy works. These different economic paths have different impact on our lives, because economists create different proposals and politicians create different policies, depending on which economy school they believe in.  

If classical economics is right, then no intervention is needed: markets will eventually return into equilibrium. Any governmental intervention (such as bailouts, legislations) shifts markets even further out of the equilibrium. According to classical economics, any stock market crash is the correction according to future fundamentals, anticipated by investors. Any intervention in form of capital injections and bailout is thus just wasting taxpayers’ money.

Time for Change

I believe, soon we will see the most valuable economy transformations ever triggered by the 2008 financial crisis.

The positive outcome of all financial crises is that it gives us new data, facts, perspectives to create new business models and ideas, as well as transform our theoretical knowledge of economics.

Historically, the threshold events for the changes in economy thoughts were financial crises. 

How the Economy Works (Review and a Summary of the Book by Farmer R.E.A “How the Economy Works: Confidence, Crashes and Self-Fulfilling Prophecies”)

After studying economics for many years, I still ask myself a question- why do we need to make profits and create growth in order to generate a good life? Sure, it creates more jobs, increase competitiveness, stimulate start-ups, and revolutionize products. But is that the only way economy works? This brings me to the next question: what is the real core of economics? Is it housing, finance, consumption, import, investments, finance, production? Had we known the answer, we could well have fixed economy problems without creating new problems.

  

Historically, economists strived to describe how economy works, by applying logical reasoning, simplified modeling, statistical and mathematical modeling. Technogical progress within computing greatly favored this development.

For example, In 1949, Bill Phillips (William Phillips), the father of the well-known Phillips curve, created The MONIAC (Monetary National Income Analogue Computer) also known as the Phillips Hydraulic Computer, a device that gave a ‘feel’ for economic behavior, by presenting visual (rather than numerical) results, which were accessible without prior knowledge of explicit advanced mathematics.(on the picture). 

In 1969, the first Nobel Prize within economics was awarded, thus consolidating economy as a science equal to chemistry, physics and mathematics.  However, the praise the economists received often got dwarfed decades later, as fellow peers rejected the validity of these same models and “old” economic thoughts” were abandoned.  

New understandings were formed, which influenced the politicians’ decisions

Economics is a mechanism, which cannot be defined by any model, graph or definition. However, understanding of economics is still crucial for our survival. It’s a mechanism, driven by our needs, desires, interactions, perceptions and emotions. From another side, the economy makes the final decision what life we should live. Paradoxically, the economy outcomes depend upon the actions of everyone in society, and the same time, economy dictates our actions. So, as peoples’ behavior cannot be predicted, and understood properly, neither can economics behavior.

  

When Your Strength Becomes Your Weakness (About Perfectionism)

 Last Sunday, I had an amazing journey across the planets, the solar system, and the galaxy, where I experienced the wildest weather conditions. At the planetarium I, my husband and my daughter watched an IMax movie, The Wildest Weather in the Solar System, produced by National Geographic. We had a spectacular journey through the solar system, witnessing the most powerful of the most powerful; “From a storm the size of a 100-megaton hydrogen bomb, to a 400-year-old hurricane, to a dust tempest that could engulf entire planets. Storms on the sun, liquid methane showers on Titan, and anticyclones whirling at hundreds of miles per hour on Jupiter”.

It was not only an educational and exploratory  journey, but also a breathtaking, beautiful, powerful and mysterious experience.

Even my 3-year old daughter was watching it SILENTLY and passionately through the entire movie. It was just astonishing.

But actually, it’s not the cutting-edge science facts as such that was so amazing to me; it’s more the attitude, the style of telling it, as well as the eye-popping visuals that made the movie so spectacular to me. It had the perfect proportions, the perfect length, the perfect telling voice, and the perfect video cuts- truly high standards! There was perfection in all, which made my experience so amazing.

 This perfection fascinated me… as it always does.

 Therefore, after the movie, I was having some reflections upon it.

It made me wonder whether being a perfectionist is a strong or weak quality of personal character.

Why does it matter at all?

If I am to claim that I wrote a perfect master thesis, I often point toward the fact that  I was very focused on details, and that I supported all my arguments with relevant and correct calculations. For somebody else, a perfect master thesis is about the spelling, layout, length or the writing style. It can be the method of working and the time of completion that should count. There is also the way of presenting and persuading, the relevance of a topic, or its originality- you name it. If I am to claim that my master thesis was perfect, I would actually mean that I was satisfied with my result, because I met the high standards, set by myself. But the outsider will just call me a narcissist and how I actually dare to “call myself perfect”?

I believe we all have a very limited understanding of perfectionism. From a negative point of view, it is being associated with narcissism, self-importance, and over-confidence.. From another hand, it is being associated with excellence, high results and achievements, as a driver for quality work, and thus- in positive context.

So, we will have different perception of perfectionism, which, in turn, can result in conflicts, misunderstandings, underestimation and/or wrong illusions about peoples, as well, and judgments and wrong conclusions.  Being a perfectionist can have severe consequences, such as low self esteem, depressions, obsessive and compulsive behavior. Eating disorders, can also be a symptom of perfectionism.