On “The Good Economy” , “Crone-Capitalism” and “Global Morals” — A commentary
Adel Bishai delivered an outstanding lecture on the recent development in the world’s economy. He argued that one of the main reasons behind the bubble economies we live in , is the fact that financial instruments lost its function as ways to empower entities to innovate and produce, and rather became a tool for asset stripping and speculations . Corporates has innovated in creative accounting by investing a great amount of capital in creating financial models with complex statistical and mathematical operations. However, the giants did not speculate the economy might stop growing and their models might not be capable of digesting slow amounts of growth. Not only that, but because they got exceptionally good at financial modelling, the governments started utilizing their modelling techniques and the market stratification is now homogeneous. Therefore, the decision-making faculties, the essence of any market, are now the same. Off course, the situation created is a magical potion for blasting economic bubbles, as the consumers now could rush into markets to purchase, or (using the exact same model) could get out of a market if it fails. However, economics is exact, real economics at least. Signs of the failure starts screaming few years before the 2008 credit crunch, but countries and corporates were so drunk with their balance sheets that they did not care to use macro-models that is built on proper economical intuition. Furthermore, the author believes that a close look at the investment bankers’ and their economical intuition reveals an interesting amount of economic illiteracy, therefore, we are more prone to further attacks by irresponsible corporates with billion-dollar wallets.
The Economist published an article titled “Planet Plutocrat” in which the authors dig more into the acts of corruption and use a crony-capitalist index based on the work of Ruchir Sharma . They conclude that crony-capitalism has peaked and it is declining. It is a great conclusion that crony-capitalism is declining, however, our economies welfare are declining too.
A fascinating article by Edmund Phelps touches the core of the problems presented above. He examines the boundaries of economic efficiency, discusses dynamism, vitality and inclusion and inquires about human satisfaction and happiness. Phelps starts by factorizing efficiency’s components into human capital and research, and argues that by reducing inefficiencies nations would boost their wealth. Phelps then reasons that if the economic system cannot deliver enough commercial work for the human capital to do, any investment in human capital will not repay it costs. Simply put, there exists a diminishing utility in the economy as a whole if there is more human capital available than the actual work that is being done; we can loosely call it an overpopulation of human capital. According to Phelps, ordinary business people are the ultimate machines of research and development, and entrepreneurship is the gas for this machine. Phelps points out that the neoclassical theory fails to comprehend, given the current complexity in the economy, “the mechanisms generating high innovation, high employment and high participation.”. He suggests a modern theory that is capable of explaining such behaviors utilizing the work of philosophers and psychologists such as Aristotle and Abraham Maslow.
The objective of this commentary is not to elaborate and extend on the characteristics that the economy’s’ posses, but rather point out what characteristics the economy’s do not.
The author believes that it is of crucial importance to shift the attention in economics thought from the characteristics of economy’s and start looking at the characteristics of people that constitute the economy. The true genius of Phelps is that he successfully formulated his concepts of dynamism, vitality and inclusion based on the studies philosophy and psychology rather that an econometric model. According to Beshay, the true solution of the global economic bubble economy is for the nations to agree on a set of moral standards that would lead us out of the dark alley we are in. Many would argue that such solution is not applicable especially in the current “status quo” of the world politically and economically. It is extremely hard to preach a new economic “religion” that would standardize “ethical” morals that preserves economic integrity. A paradox arises in this line of thinking, how can economists apprehend the physiological and philosophical aspects of the people constituting the economy while exactness is the language of modern economics? The answer is by targeting outcomes that would appeal to the physiological and philosophical needs of the people yet are calculated under specific mathematical frameworks. Any amount of innovation in the techniques used to direct people choices to outcomes that are favorable to the social welfare could be a powerful instrument in the hand of economics. To illustrate, part of the problem presented earlier in this paper is that the decision-making faculties of the corporate world became homogeneous, thus, maximized the risks of significantly affecting market. It follows; if the current markets became heterogeneous, the intensity of risk will decrease. To reach such heterogeneous agents, frameworks that scatter the decisions should exist. Tools like game theory analysis, bounded rationality and computer-generated simulations can empower economists to design frameworks that would guide people’s choices toward an outcome that maximizes the social welfare. This way, economists can create a new “religion” in which morality and ethics can be engineered to prevail, rather than allowing crony-capitalists to set the religion of the “Gods that failed.