Sunday, May 20, 2018

Revisiting economics

As countries, run by clueless leaders, proliferate, it may be worthwhile to revisit economics in a modern context. Pure empiricism, albeit a small sample, tells us that decisions made by a few people will always be inferior to the wisdom of the crowd and markets. Although there have been a few examples of a benevolent, yet autocratic, leader maximizing societal utility through finely crafted policies, it is not something modern societies can aspire to. Humanity has been degenerating to such an extent that benevolence is not an attribute that one thinks of in leaders.

Recent findings that (1) the Greenland ice samples show how greed and ignorance, did the Roman empire in, are interesting. Money, based on a dirty metal, resulted in led pollution and the subsequent fall of an autocratic syndicate. As academics cling to pure notions of last century economics, they may be missing some important ideas. First, the value of countries and companies are not based on resources or balance sheets, but rather the ability to innovate. Second, there are different varieties of market failures with differing loss of value. For example, a country or company, with an educated and healthy population will have such a high competitive advantage, market failures in these domains will likely result in loss of value, much higher than anything else.

Markets and crowd wisdom provide good guidance for policy. As democracies get manipulated by information webs, it is unclear that the systems and processes that evolved to an optimum position will survive. As countries and companies bifurcate into red and blue without any brown in between, we are approaching a policy impasse. The gap is widening between those who want to focus on tactics to maximize today's cash flow and those with stars in their eyes, setting out to change the world. Neither is likely to succeed as the former will be like the frog that got cooked in a pool of water with slowly increasing temperature and the latter, learning to fly by jumping off the precipice.

Ultimately, it is a comedy - if you do not find the irony, it is time to check out.

(1) http://www.sciencemag.org/news/2018/05/rise-and-fall-roman-empire-exposed-greenland-ice-samples