I don’t really have a theory of economy, but every theory so far has been weak. So I am no worse off for my lack of a theory than the many distinguished math/econ academics who have “proven” their theories with complex and consistent mathematics, giving us precise calculations that are completely wrong.
This I know: Economics, business, finance, investment, and markets have only a tangential relationship to the real business of humankind—the wellbeing of people. If the money instead goes to the rich—which is today’s political goal—inequality will thrive and democracy will be eroded. People will suffer unjustly. If the miscreants of the corporate world are not firmly regulated, if laws don’t protect our precious earth, all will suffer.
Economics has only a tangential relationship
to the wellbeing of the people.
This I know: There is no such thing as the Free Market, and the way the market actually functions bears little resemblance to what conservatives believe. It is sometimes benign, often not. Regulation of the market by government is essential to prevent the sorts of extreme crashes and devastating financial losses we have experienced in recent decades, as well as the blatant rent seeking by the rich, who unduly influence Congress for their own benefit. During all this, conservatives have insisted that markets are self-correcting, while at the same time we very nearly destroyed the global economy through failure to act.
This I know: How markets and people behave is unpredictable, and most economic theories have pretended the opposite. Worship of the Free Market has given us, as the author Anatole Kaletsky says in Capitalism 4.0, ruthless exploitation, timeless stasis, entrenched privilege, false assumptions, and deliberate job destruction, rather than the benign names of theories for which these words substitute. In other words, most market theory bears no resemblance to reality, and is essentially worthless.
How markets and people behave is unpredictable.
This I know: Economics is philosophy, not mathematics; the goal must be to protect the wellbeing of the people. The long effort to transform economics into a “hard” science has been unsuccessful in spite of many attempts. Theories of economics in recent decades have relied on complex and sophisticated mathematics, which provide precise numbers. But in order to make them work, economists have simply assumed away anything that did not agree with their theory. They made foolish assumptions about efficient markets and rational expectations in a world that is neither efficient nor rational. And all their complicated math relied on good old Gaussian distribution, the infamous bell curve. And so, results showed up in 2007 that were 15 or 25 standard deviations off, a one in a billion or trillion chance. In other words, a Black Swan, an unexpected event. Chaos. And this is the term that best describes the functioning of markets.
What economists should have been studying is chaos theory, which is mostly the 40-year-old brainchild of mathematician Benoit Mandelbrot. Chaos theory had already been successfully used for extremely complex weather predictions, and was useful in several other fields of great complexity. But it didn’t give the precise answers the math/econ people were getting, so it was ignored. Thus we ended up with precise answers that were completely wrong.
What economists should have been studying is
The global market of goods is potentially of inestimable value for all seven billion of us, but it is too easily manipulated and perverted by special interests such as large corporations, evil bosses, and laissez faire governments. If the market is simply allowed to function without controls and timely government intervention, it will be characterized by random disasters, purposeful criminality, and sharply diminished equality for the world’s people. This is what we have at present. The rich claim that they generate jobs, but the generation of jobs is an accidental and low priority byproduct of their self-enrichment. It is not their goal. We know this because recent unprecedented wealth has generated very few jobs.
I do not pretend to understand either complex mathematics, advanced statistics, or chaos theory. But what I do know is that any valid theory of economy must have as its highest goal the wellbeing of the world’s people, as well as the planet on which we all rely, and not the enrichment of the already rich. What we have in the US now is unrestrained rule by the mega-rich.
A just economy has only one goal:
a fair share of wealth for all persons.
My theory, or lack thereof, is certainly no worse than the finely-tuned and incorrect economics that has earned Nobel awards for certain academics over the past forty years. The laissez faire, market-is-always-right economics of the Reagan/Thatcher era has proven to be an economic disaster, resulting in gross imbalances in wealth and ruinous assaults on our planetary life support system, as well as a near meltdown of the global financial world.
There are many confusing complexities in the functioning of markets, but in its essence, a just economy has only one goal: a fair share of wealth for all persons. Beyond that, everyone is free to seek any amount of wealth as long as they hurt no one in the process. When the market doesn’t satisfy this simple requirement, all the calculations and theory in the world mean nothing.