At the end of this post is an article which makes a lot of good points about how we have and continue to think about economics. I would recommend reading it. It is worth the time I think. Why? Because thinking about economics differently than we have traditionally is probably key to our future as a country. In some ways, this article reflects some of the thoughts I have had regarding economics in the past, but does a lot better job of articulating them.
Let me start by explaining the title of this post. If there is one thing that economic theory does, it is assume. It assumes a lot! At least the economic theory that we have all been exposed to and evangelized about since high school. Those assumptions, simply put, are bullshit. Even a 6th grader would probably roll their eyes at some of them. For example:
–Markets distribute goods, services, and benefits rationally and efficiently.
If there is one thing the market is not, that would be rational. There is nothing rational about it. And efficient? Hardly! There is nothing efficient about a bubble, nor anything rational. And yet we cling to this idea that ‘the market’ knows best. The market does not ‘know’ anything.
The argument that markets self correct is also a crock. Correct to what? Underlying value? Ask anyone, no matter how astute or ignorant regarding economics what the underlying value of any asset is, and they will be doing nothing but guessing. Our ability to establish value went out the door when the dollar was decoupled from gold. Not that the dollar should not have been decoupled from gold, but it should have been subsequently coupled to something of common, tangible value.
And yet there is a dogmatic effort to hang on to what are obviously unreasonable assumptions about how the economy really works. Formulas which have been around for over 100 years are still applied, when it is known that they provide an overly simplistic and distorted view of the environment which they are meant to describe.
The article linked to below addresses some of these assumptions and their impact on how we understand economics. It is about time someone admits that the old formulas don’t really describe the economic environment, and started looking at that environment as the complex ecosystem it really is.