Informed_Debate's profile . Informed_Debate group posts
Posted by aphenine on Mon 22 Feb 10, 9:05 AM to the Informed_Debate group.
I've been thinking for a long time about economics in general. I started thinking about it for various reasons, not least because I was pretty unhappy with economic policy in the world prior to the Credit Crunch. My gut feeling was that something Very Bad was going to happen, only I couldn't understand how to explain rationally why I thought so, and talking about something you can't explain doesn't make for great debate.
So, one of the things I did was to start casually learning a load of economic theory and history, and try and figure out what it was exactly that was bothering me (so, no, I'm not an expert). When I came to study free market economics, I realised that the problem I had seems to be embedded somewhere in the assumptions of the free market itself. When I derived the free market, I got the result that was prevalent in economic theory before the Credit Crunch happened: that free markets are good and efficient and best left unregulated. However, my reading of history seemed to indicate that the exact opposite was true, that periods of free economic policy tended to end very badly, confirming my feeling.
I thought about this contradiction and decided that the free market theory I had derived was correct, but that somewhere in the derivation I (and everyone else who makes the same journey) had to have made some assumptions somewhere which could explain why theory and practise didn't match up. This led me to go back over the whole theory with a tooth comb. Once I did, I realised that there were many small assumptions contained in free market theory that were brutally unrealistic. So I tried playing with those assumptions. Without those assumptions, it soon became easy to create free market theories which had mechanisms which caused them to crash as well as display boom and bust behaviour. In fact, once I started, I found it easy to create a theory which could model the Credit Crunch (it required two modifications) and found it next to impossible to create free market systems which would naturally regulate themselves. When I did create some, they turned out to be amazingly complex and required me to enter into fields away from traditional economics, like sociology.
This awakening led me to realise various things. While on one hand I came to understand for the first time the sheer power and beauty of a free market system, I also came to understand its inherent weaknesses and exactly how my feelings translated into practical and concrete worries. It also led me to realise that, by and large, the claims being made about how free markets worked before the Credit Crunch happened (especially the theory of Rational Expectations) had been too simplistic to be correct, and that it was clear to me that the Credit Crunch had been based on a false belief by many people in theories which could not be true all the time and so must someday fail. This of course raises the issue of why so many people believed something so simplistic all at the same time and why, for example, they don't believe something equally simplistic but different (e.g. Climate Change).
So, to give something about which can be debated, I'm really interested in how other people reacted to the Credit Crunch in terms of their economic understanding. Whether you believed in free markets or not beforehand, how did the Credit Crunch affect your faith (or lack of faith) in free markets and your overall understanding of economics? What lessons did you learn from the Credit Crunch? Do you think future occurrences can (and should) be prevented and if so how would you go about it?
| 22 Feb 10, 10:10 AM AstronautMikeDexter UK(E), 2 yrs |
Why not publish this work and collect your Nobel prize? --- Ha! | |
| 22 Feb 10, 10:19 AM Ceptable UK(B), 4 yrs   |
My study (albeit limited) of economics tells me that it's all mostly made up, and if it is ever correct there is at least 75% luck to support any judgement. The problem with any complex system is that the drive to simplify to something you can plug into a spreadsheet is promoted by senior managers (be they commercial CEOs or government ministers) is strong - with only limited comprehension that to get to a simple 'If we do x then y happens' that pretty much all reliability has been removed. I'm fascinated by how 'systems' work, but pure economists (if there is such a thing?) don't do a lot for me, in any sense. I'd recommend anyone interested in economics to read Asimov's Foundation books - if you think the concept of psychohistory is far fetched then take a close look at the (lack of) actual difference between that fantasy and how some people apply economic thinking. | |
| 22 Feb 10, 6:00 PM proccie UK(HP), 5 yrs   |
Strictly speaking the prize in economics is the "The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel" Actually I believe that the economy of the world is essentially chaotic with a strange attractor and is thus uncontrollable in the classic sense, and only as predictable as say the weather. Zen S&M: The sound of one hand smacking. | |
| 22 Feb 10, 6:09 PM Ceptable UK(B), 4 yrs |
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| 22 Feb 10, 6:19 PM Lex_Magister UK(M), 7 yrs |
Want=Credit=Debt-Control-Employment=CRUNCH As I type I reach out my hand, so as you read, you are then touched. | |
| 22 Feb 10, 8:39 PM lahmai UK(SE), 2 yrs |
Slavoj Zizek (sociologist/cultural theorist) has plenty of interesting things to say about capitalism, suggesting that we are addicted to its permissiveness (and that the master/slave relationship is now transgressive in its rigid structure). Regarding this addiction, he says: "Think about the strangeness of today's situation. Thirty, forty years ago, we were still debating about what the future will be: communist, fascist, capitalist, whatever. Today, nobody even debates these issues. We all silently accept global capitalism is here to stay. On the other hand, we are obsessed with cosmic catastrophes: the whole life on earth disintegrating, because of some virus, because of an asteroid hitting the earth, and so on. So the paradox is, that it's much easier to imagine the end of all life on earth than a much more modest radical change in capitalism." Re. the OP's question about the Crunch, hindsight benefits from 20:20 vision. Zizek points out- "I couldn't help noticing how all the best Marxist analyses are always analyses of a failure ... Like, why did Paris Commune go wrong? Trotskyites. Why did the October Revolution go wrong? And so on ... OK, we screwed it up, but we can give the best theory why it had to happen." Anyway, notwithstanding the above, I reckon it's all about moderation. Alcohol, credit, sex- all are best in moderation. OK, maybe not sex. But alcohol and credit, for sure. But like all addicts, no matter how clever we are, our addiction is just as clever. So to neoliberalism, Bill Gates being the archetypal neoliberal. Thus: capitalism creates these monstrously wealthy people on the back of unethical practices (sweatshops; the plundering of oil and minerals in 3rd world countries, etc); then they spend their wealth buying 20,000,000,000 mosquito nets for those very people who can't afford their own nets because the capitalists have stlen their oil. The capitalist thus feels better, and capitalism takes on an insidious 'community' or 'cooperative' tinge. So even liberal ethics can't halt the capitalist juggernaut, which like an addiciton eats itself up through thinner and thinner credit arrangements. Just my tuppence. I'll do anything for a lollipop... Edited 22 Feb 10, 8:40 PM by lahmai | |
| 22 Feb 10, 9:25 PM Lex_Magister UK(M), 7 yrs |
The films Soylent Green(1973) and Dune(1984) based on the 1965 Frank Herbert novel of the same name, I think depict a chilling view on how things may be if we don't kinda get a grip..... As I type I reach out my hand, so as you read, you are then touched. | |
| 22 Feb 10, 11:56 PM Ceptable UK(B), 4 yrs |
Rollerball(1975) is also fascinating when thinking about potential economic/corporate futures, plus of course most cyberpunk. | |
| 23 Feb 10, 12:26 AM Mr_IRV UK(G), 2 yrs |
When interacting with economists actively engaged in research i've been massively impressed by their general openness to input from other fields. At the same time as they are searching for input from other disciplines there's 'economic imperialism' as their models are ported over to applications in the rest of the behvioural sciences. Of course there are strides to be made at the interstices of disciplines and inter-disciplinary research is something i'm much in support of but i'm curious which way the whole blending will go. Will the behavioural sciences move towards unifying frameworks or will each simply weaken it's own ability to reach consensus or define a purpose as diversity increases. Seems to me to be a fascinating time to be working in the area. I was recently at a talk by Geoffrey Hodgson and came out pretty besotted by his thoughts on the credit crunch and the potential future path of economic science. He's worth a read if anyone is interested.
Do I contradict myself? Very well then I contradict myself, (I am vast, I contain multitudes.) Edited 23 Feb 10, 1:46 AM by Mr_IRV | |
| 23 Feb 10, 1:18 AM AnEnglishMaster UK(ME), 4 yrs |
I am certainly no economist, so hesitate to post. However - and please feel free to tell me if I am wrong - would not a diehard "free-marketeer" claim that the collapse and credit crunch were precisely evidences of the market correcting itself, proving that it works? Would they not argue that, once people began to over-speculate, a crash was bound to happen BECAUSE you can't go against the principles of the free market - once it became unstable, it *had* to crash? English "It may be that your sole purpose in life is to serve as a warning to others" - Anon |
