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Mats Kaarbø

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Is Conventional Economics a Form of Brain Damage?

Economists are led to believe that conventional economics is a science and that natural resources and our environment are merely externalities in the economic equation. http://www.youtube.com/watch?v=4NiauhOCfsk

To be fair, capitalism was created under the assumption of scarcity, but we have learned today that scarcity is in fact not an issue. A World Hunger Education Service report (http://www.worldhunger.org/articles/Learn/world%20hunger%20facts%202002.htm) "reveals" that "the world produces enough food to feed everyone." and that "The principal problem is that many people in the world do not have sufficient land to grow, or income to purchase, enough food."

This brilliant video shows the unsustainable mindset we've created in order to keep our economy going: http://www.youtube.com/watch?v=9GorqroigqM&feature=plcp (Viewer discretion, for free-market capitalists, is advised...)

So, is conventional economics truly a sustainable and sane value system that is perpetuating sustainability, caring for our environment and the needs and happiness for the inhabitants?

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    Oct 8 2012: I'm not pointing this at anyone in particular, but I can never work out why some people constantly point out that Carter created the problem and Clinton made it worse and then Obama (Don't get me started on Obama) when they don't mention that Reagan did nothing about it and George I did nothing about it and George II actually made the situation worse even though he had control of both houses fotr several years. Let's face it, none of them are responsible. The fault lies with the general public who are so full of patriotism they won't vote for anyone who even makes the slightest suggestion that the US economy isn't invincable. I think it's been vinced.
  • Sep 26 2012: Conventional economics and its views on natural resources and the environment are not sustainable.
    We can not eat money; neither can we eat a fat bank account.
    The industrial practices of the current economic system certainly favours a few people. And now all the destruction and environmental degradation seem not to be taken serious.

    In the end, all that we call 'technological advancement', and 'progress of science and technology' are, in reality, a power possessed by a few people, which they may, or may not, allow humanity to profit by.

    So far, what we can infer is that, as long as more money is being made it doesn't matter that the world burns or shrinks.
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      Sep 26 2012: Nonsense.

      Is KIva harming Africa?

      Look at what is happening in Rwanda and what Paul Kagame is doing is that better than before or worse?

      Why do the prognosticators say that Africa might be the next economic growth area?

      Get rid of your preconceived notions and LOOK...

      Here is a lesson to all leaders, if you don't give the people a game to play the game will become to get you. Me thinks Mr Kagame will be in office for a long time which is more than I can say for the POTUS
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    Sep 26 2012: Economics are called models. I consider X,Y, and Z the factors that we as a nation are most influenced by. However, my opponet considers A, B, and C as the driving force. We can each prove our point by applying our models and which you accept is the new model. It does not mean one is better or worse that the other ... just accepted. I am certainly not educated in this field but the models I have see are basically drawn on the same factors. Perhaps more weight is given to one than another but essentially the same.

    All models are in part based on balanced trade, GDP, political stability, and resources necessary for growth.

    There is no model that can stand the political mandates of Carter and Clinton that made banks loan money for housing to those who could never meet qualifications. That alone doomed the housing bubble to pop. Fannie May and Freddie Mac kept saying its ok all the way to the bottom.

    We must get the feds out of commerical businesses .... I know we will call it a tax and that will make it alright.

    No one wants to hear the naked truth about the countries problems. So politicians tell the people what they want to hear. A chicken in every pot and a car in every garage. Can't be done but they like to hear it.

    A aircraft carrier takes miles to turn around .... a sinking economy takes years to turn around. The question you have to ask is do want to keep riding the hourse that got you there or are you ready to let someone else try to turn the ecomony around with their model. AND before it is said ... don't blame the wealthy or the last guy that kite won't fly.

    Brain damage? Naw ... just a wish list that either pans out or falls short.

    Bob.
    • Sep 26 2012: Wow, how did the kool aid taste going down?? Neither Carter nor Clinton's policies forced the banks to lend to a degree that would have endangered them in the slightest. The volume was so minor it would have been able to be written off had every single loan failed. They did not fail (some days I wish they had) So, derivatives were born. Consider reading The Big Short. The money required to "bail out" the US economy would have paid off every single private mortgage in the US with change left over. If the "housing bubble" had been about mortgages the problem would not have been able to destroy the global economy.

      I am not defending Clinton. He has a great deal to answer for. But, please I beg you. Really do the research on the cause of this disaster. If intelligent people do not fully grasp the cause they can never grasp the solutions.
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        Sep 27 2012: Carter created the CRA (Community Reinvestment Act), Clinton turned it into Frankenstein's monster and Barney and Chris set it loose on the village.

        They are all children. Remember this is the president who got caught getting hummers in the white house and then lied about it and was impeached. Barney's boyfriend was running a prostitution ring in his apartment. You might say that is their personal life? I say if that is how little regard they have for themselves how do you think they treat others?

        There is apparently a sentiment on this thread to not call people insane. Ok so lets be real clear these guys are traitors to their country and to their friends and family. This is not my opinion it is a fact. Nothing in life is more infuriating or damaging than a traitor. This is the guy who doesn't even have the guts to be your enemy he is below that. This is Berny Madoff, Benedict Arnold, Arnold Schwarzenegger, Jane Fonda.

        The result of the CRA caused banks to make loans they would not have otherwise made, this was absolutely goverment coercion. The banks went along with it because the government bought the paper from the banks, through Freddy and Fannie so they didn't have any exposure.

        Investment bankers make high risk investments that is what they do. You might as well blame a dog for eating meat.

        As to the derivatives, I have a question if this whole deal was such a big thing how come it hasn't been in the news for years? Answer because it was not that big of a deal.

        How come?
        Because derivatives require daily collateral being posted as market prices change. In addition to this the companies hedge their bets, they don't go all in. The media doesn't report about hedging so the totals look gigantic but are not because of the hedging. Even Lehman brothers only had 10-20 million in exposure to derivatives.
        • Oct 1 2012: "Ok so lets be real clear these guys are traitors to their country and to their friends and family. This is not my opinion it is a fact."

          No, that is your opinion. If you truly believe that it is a fact then maybe it is alright to start throwing the word "insane" around.

          If you examine presidential history in your diluted context then you almost have to consider every past commander in chief a traitor . Nixon and watergate, Reagan with iran-contra scandal, Bush starting a war in Iran, and Obama not going on fox news sunday. Those are just a few examples.
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        Oct 1 2012: Traitor:

        A person who betrays a friend, country, principle, etc.

        The examples you give had questionable ethics but that does not make them traitors.

        Berny Madoff, Benedict Arnold, Arnold Schwarzenegger, Jane Fonda. were traitors, not my opinion. By definition they betrayed their country or friends or customers or constituents.
        • Oct 1 2012: I apologize, I thought you were singling out those two presidents as being traitors.
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        Oct 1 2012: Don't apologize Carter imo was not a traitor just incompetent, Clinton is a traitor, Barney Franks is a traitor, Chris Dodd is a traitor, Alan Greenspan is a traitor.

        You see as the individual descends to the bowels he forgets that he is responsible for, insert function, e.g. people's "right" to own a home. Carter on the other hand was ill advised to start the CRA but his intentions were true to his cause. Which was not the case with the ones who had descended to the bowels where they now reside next to Lucifer.
        • Oct 4 2012: They were traitors but you excuse Bush taking us into two wars both unfounded and unfunded and then destroying our own ethical and legal status by detaining people indefinitely AND engaging in torture both clearly proscribed by a treaty we designed and signed??

          Jane Fonda was an idiot who stupidly and naively expressed her freedom of speech and right to associate. No traitor.

          Cheney was a traitor who sold out his own government and robbed the entire nation by blatantly stealing government contracts for his cronies and cohorts and then in some cases getting our soldiers killed through lousy construction and missing battle gear. That's a traitor.
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        Oct 5 2012: I didn't mention Bush? Not that I'm a fan.

        He had a good reason to go to Iraq remember the world trade center has been destroyed by terrorists killing as many people as the Japanese killed on Dec 7th 1941, that caused the U.S. to enter WW2.

        In times of war imo you do what you have to as you are defending the entire country which means silly ass things like rules of engagement are like discussing the rules to a knife fight. IMO there is only one rule win.

        Ok maybe not a traitor but at the least a liability to this country.

        Regarding Cheney I'm not familiar.
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          Oct 5 2012: "He had a good reason to go to Iraq remember the world trade center has been destroyed"

          iraq had nothing to do with it
        • Oct 5 2012: "I didn't mention Bush? Not that I'm a fan.

          He had a good reason to go to Iraq remember the world trade center has been destroyed by terrorists killing as many people as the Japanese killed on Dec 7th 1941, that caused the U.S. to enter WW2."

          You did not just say that... ay ay ay...
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        Oct 5 2012: The rhetoric of the time was that Iraq was harboring Al Qaeda and generally aiding terrorists. Remember the mood of the U.S. at the time was for blood.

        http://en.wikipedia.org/wiki/Saddam_Hussein_and_al-Qaeda
        • Oct 5 2012: Rhetoric and mood are not good enough reasons to go to war!!!!!!! There is AMPLE evidence that Bush and Cheney if not Powell knew D*** well that they had not actionable intel on Iraq. And EVERYONE knew that Sadam Hussein had had nothing to do with the world trade centers attack. For that matter it was iffy why we went into Afghanistan since the attackers were from and funded by elements in Saudi Arabia. I was able to see Afghanistan and my own family members were going. But, we knew Iraq was unfounded from the outset. It had NOTHING to do with the world trade center and everything to do with Iraq threatening to trade oil in Dinars rather than dollars.

          Dear God, we can have differences of opinion about policy but at least, I beg of you, do some research. Cheney was AND STILL IS engaging in war crimes and profiteering. Look up soldiers who were electrocuted in their barracks.
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        Oct 5 2012: The president at the time said that Iraq was harboring terrorists and had WMDs. Myself like most Americans figured he knew more about this than I did.

        Yea I have heard the oil bourse theory before. Why isn't Iraq pumping as much oil as it did a decade later? You would think...

        Cheney said that in war reconnaissance is often wrong and this is one of those times. I don't have enough interest to do research on this, since you know so much about it enlighten me? or maybe that is not your motivation?
        • Oct 5 2012: He said something about WMDs, he never said Iraq was behind 9/11. And I'm not sure why you assume "most Americans" thought the president was right, or does that only happen when the president is a white republican?

          Intel about Iraqi WMDs was forged, plain and simple. Bush, Cheney and the CIA lied to the American congress, the American people, to America's allies (including their leaders) and to the world. Everyone who doesn't live in the faux news bubble knows this, including moderate conservatives, independents and libertarians.
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          Oct 5 2012: there is a popular point that why america do the Iraq war.because U.S just wants to destory some of your weapon which have been far behind .then you government just finds a excuse and do it ,then what do you think who will benifets from the war . the weapon companies .they can sell their weapon .and make money to do the new research .


          also many american oil companies want more .oil they are for the government to start the war with Iraq . so the real ture is interests ,all wars are the same .


          terrsrists and WMDs are just the excause .
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        Oct 5 2012: Chen there is some truth to the crony capitalism angle. On the other hand Hussein did kill 10s of thousands Kurds with poison gas. So it wasn't totally unfounded.

        I think you are right that wars are often created for financial reasons.

        Since your so knowledgeable about the propaganda I have been fed, do you think your country is ingenuous and forthright?
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    Sep 26 2012: I agree with Krisztian that people's attempts to model phenomena (whether in economics or elsewhere) can be close or far from accurate in terms of their explanatory or predictive power, but to classify either the models or those who support them as approximations as "brain damaged" is the sort of labeling that does not advance thought or understanding.
  • Sep 26 2012: Conventional economics is not a science. It does not make predictions often and where it does the predictions are often wrong. A true science would then adjust its theories to take into account the new information and predict again.
    I have never seen economic theory perform this way.
    It is usually based on ideology and wishful thinking.
    • Sep 26 2012: The "science" you need to study is "behavioral economics". It is based on how people actually behave.
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    Sep 26 2012: Calm down it is going to be ok.

    There are more trees today than than ever, because those nasty logger plant trees lots of them.

    As technology changes so does the requirement of the resource, peak oil and higher prices causes technology to change maybe thorium is the next fuel? But only the market place can determine this, when the know best academics get involved you end up with Solyndra and a huge cost to taxpayers as in Spain.

    The economy is objective. It is a point of agreement that benefits both parties or else they would not make the exchange. It forces both parties to consider the others point of view. It is a form and a perfect paradigm of communication. It creates work it creates sanity.

    Maybe this is what Mr Suzuki is missing?
    • Sep 26 2012: "The Market" would just keep cutting forests down until there is nothing left, because that is cheaper than caring about what happens many years from now. Like the OP says, the environmental costs are externalized to the next generation or the tax payer because the current system of economics does not keep track of natural resource depreciation.
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        Sep 26 2012: Re read my post but this time for comprehension.
        • Sep 26 2012: You are assuming some cheap, miraculous (no doubt government funded research) technology will come along right before the last forests are cut. That is wishful thinking, there is no guarantee nature can hold out long enough over and over again, we've been lucky in the past, that's all.
      • Sep 28 2012: Actually the logging companies are replacing natural forests with tree farms. The number of trees is increasing while the diversity of trees and the natural habitat for thousands of species is diminishing.
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          Sep 29 2012: Do you have anything beyond conjecture?
        • Oct 1 2012: "The number of trees is increasing while the diversity of trees and the natural habitat for thousands of species is diminishing."

          Yes, and the quality of the soil also gets worse because of this and the only reason logging companies are actually planting new trees rather than just moving on to the next forest is that they are hindered by regulation that either forces them to plant new trees or makes it difficult for them to start logging in a new forest, or a new country.
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          Oct 1 2012: Again do either of you have anything beyond rhetoric??? I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo, I think, imo,
  • Sep 26 2012: "Economists are led to believe that conventional economics is a science and that natural resources and our environment are merely externalities in the economic equation."

    Economics is not a science, it's way too imprecise and subjective, but the flaws you describe are flaws in conventional (capitalist) economics, it is possible to develop economics that (try to) account for natural resources. Conventional economics don't count losing a forest as a cost because a) our ancestors of centuries ago were used to natural abundance (they couldn't fathom cutting forests so fast that nature would not be able to replenish) and b) not counting this as a cost benefits the people at the top of our economic system (it makes it easier for them to run a seemingly profitable business and makes them look like they create more net wealth than they actually do).
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    Oct 6 2012: I think:
    The root reason is that we are pursuing INVALID happiness.

    The SILLINESS of “invalid happiness” is that it temporarily-apparently makes you happy but brings you suffering in long term in reality.
    Such as, taking junk food, drinking, smoking, drugging, … making too much .

    Once you know them, you will quit them easily and not be greedy.

    (Too much money” is the money that exceeds the OPTIMAL POINT of money for a valid-happily living.

    Its optimal points should be the income of about $6,000/year in US (1/10 of Gallup’s) and
  • Sep 29 2012: Where I have been Economics is in the College of Liberal Arts not the College of Science. Otherwise we would falsify conventional economics. In addition, it has Marx (not my favorite Marx e.g. Groucho. ) Of course, we reactionaries like classical economics as Ricardo seems to know there is science and not just human capital. Finally, we can look at thermodynamics or biology(Malthus) and do some back of an envelop arithematic
    Most important Adam Smith has told us that Man is essentially evil in roughly those words. Some economists have sold out,but I believe Paul Krugman is like Frued - He can't pass up a fight with bullies - sort of admirable wouldn't you say? No taxation without representation I say - Why should some pigs be allowed to lower the wage structure of a country just because they are big donors?
  • Sep 28 2012: I suspect what economists think and do has little effect on the economy. Mainly, economists just describe the economy.

    IMO, Economics is now a way for economists to make money doing something that they find interesting. Perhaps one day they will develop enough knowledge and expertise to warn us about the next bubble.
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      Sep 28 2012: Unfortunately you are in the vast majority.
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      Sep 28 2012: they should be. but many of them became policy advisors.
      • Oct 4 2012: Too true. They became the last few decades worth of our shamans interpreting goat intestines and decided the fate of the people on the steam.
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    Sep 28 2012: Democracy is the worlds worst form of government... Except of course, every other system of governance human beings have yet tried. The same is true of capitalism. I love how the recurring theme nowadays is "This doesn't work"... That doesn't help... What will work? Should be the question we are asking our selves.

    Personally, I believe a not for profit model of governance would help. It's not brain damage to do something that won't work forever, when you don't yet have a system being designed in response, that will work even in the short term. Often what is proposed as a solutions is "let the state take control"... in America... That's already the system... The federal reserve has taken control of our economy, and do everything they can to contribute to our unsustainable consumption. So... That didn't work.
    • Oct 4 2012: The Federal reserve is not a governmental body.
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        Oct 5 2012: at least not officially. but i dare them to go against the government's will.
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        Oct 5 2012: If you believe that... I own stars... and I'm selling them, dirt cheap.
      • Oct 5 2012: "The Federal reserve is not a governmental body.

        Half of it is, the other half isn't. The half that officially does the government's bidding is filled with people who used to be private bankers...
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      Oct 6 2012: I think:
      The root reason is that we are greedily pursuing INVALID happiness.

      The SILLINESS of “invalid happiness” is that it temporarily-apparently makes you happy but brings you suffering in long term in reality.
      Such as, taking junk food, drinking, smoking, drugging, … making too much .

      Once you know them, you will quit them easily and not be greedy.

      (Too much money” is the money that exceeds the OPTIMAL POINT of money for a valid-happily living.

      Its optimal points should be the income of about $6,000/year in US (1/10 of Gallup’s) and
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    Sep 28 2012: I think it's a bit much to call conventional economics brain damage. I agree that it is not a science. Its not a science because it is not truly empirical. The core of empiricism is observation and measurement of factors in the observed phenomenon. Typically, in economics, the goal is to understand the interactions of people with subjective motives and ideals of value. Money is at the center of this. It is quantifiable, but has no objective reality. It is a symbol that facilitates transactions between people. Value is similarly subjective. You can look up the price of gold on the market, but if you go to a pawn shop you might not get that price. If you were stranded on an island with a group of people it may be worthless to trade with them, or it might be worth a bunch of coconuts to someone who believes in the possibility of rescue.

    The same can (and has) been said about other social sciences such as sociology, psychology, and political sciences. There is a reason you get an arts degree when you study economics and not a science degree.

    I would argue that the foundations of economic systems are essentially taken for granted. In free market capitalism, the right to property is assumed to be very important. In marxism, it is the relationship between workers and employers that is important. In some indigenous cultures status is earned by how much you can afford to give. None of these premises are proven or empircally demonstrated. For this reason, I consider certain economic beliefs to be more similar to faith than to science. I often laugh to myself when I talk to people who claim to be athiests who believe in only reason and evidence, and hear them claim that the free market is magically going to solve our problems.
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      Sep 28 2012: let me list some statements.

      "if two persons freely decide to engage in exchange, they both prefer the item they receive over the item they give up, otherwise the exchange would not happen."

      "people try to predict the result of their actions, and choose the action that they hope to bring the most desired outcome. error is of course possible."

      "if i have 5 identical items that are interchangeable and have multiple uses, and i have to give up one of them, i will give up the use i value the least, and assign the remaining 4 to the more important uses."

      "we do not (yet) have a method to measure the satisfaction or enjoyment that a person gets from an activity. we can only observe actual choices of one activity or item over another at a certain moment by a certain person. this knowledge does not necessarily applicable at another time for another person."

      which one of these do you think needs further testing, experimentation or observation?
      • Sep 28 2012: "if two persons freely decide to engage in exchange, they both prefer the item they receive over the item they give up, otherwise the exchange would not happen."

        Define "freely". Humans have to factor in their own survival, so a person would sell 100kg of uranium ore for a bottle of water, if he were trapped in the desert. Humans attach infinite value to their own lives and those of their loved ones, this severely screws up matters. In addition, the two parties are not likely to have equal information about the market.

        "people try to predict the result of their actions, and choose the action that they hope to bring the most desired outcome. error is of course possible."

        Error is not only possible, it's the norm: people will make mistakes in both choosing what they think is a desired outcome and in calculating how far a certain trade will go towards that outcome (because of insufficient knowledge or panic). What a "desired" outcome is also differs from person to person. Knowing how to simulate human decision making behavior requires neuroscience, not simple mathematical models that assume perfect rationality and complete knowledge.

        So your basic rules are not that basic, after all, people can't even agree on what constitutes a free trade (you choose to define it as trade without "coercion", knowing fully well people don't agree on what coercion is, I'd say taking advantage of a famine to raise food prices is coercion, you probably think differently).
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          Sep 28 2012: i don't have to define freely, as it is defined. it means without coercion. it does not include freedom from nature.

          humans don't attach infinite value to their life. it is demonstrated through their choices, let me show two examples. one example is the fact that people drive cars, and also go rafting. to sit in a car means you risk your life with like p=1/N probability. the cost of doing that is your valuation of your life divided by N. if your life represented infinite value, one Nth of it is still infinite, and you would not drive a car. let alone go rafting. example two: some people actively sacrifice their life for a cause, like saving their children, or even protecting their religion.

          error can be the norm, but it does not change what i have said. people try to predict, and act to enhance their circumstances. different goals also does not affect it. everyone seeks to achieve one's own goals.

          so my basic rules are basic after all, and very carefully chosen to avoid the very traps you try to set up here.

          free trade is also very well defined, having not more "gray areas" than everything else has.
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        Sep 29 2012: "if two persons freely decide to engage in exchange, they both prefer the item they receive over the item they give up, otherwise the exchange would not happen."

        Not always true. Sometimes people regret what they have purchased. Sometimes people are swindled, sometimes the thing they bought is cheap junk that breaks on its first use, sometimes people spend money while they are drunk and irrational.

        "people try to predict the result of their actions, and choose the action that they hope to bring the most desired outcome. error is of course possible."

        Also not always true. Sometimes people act spontaneously without considering the consequences. Sometimes people have mental illness and that prevents them from predicting the outcome of their actions.

        Regardless of the veracity of those statements, I'm not sure what you are getting at with this exercise. Are you claiming that those statements are self evident? Are you implying that they need no testing or observation? If you are then you only prove my point. My point was that economics is not strictly empirical and therefore not a science. Arguing that it need not be empirical does not support the idea that economics is a science.
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          Sep 29 2012: 1. be careful. i did not write "benefit" but "prefer". it is at the time of the exchange. if they discover later that the exchange was not in fact beneficial, it does not change that it looked like at that time. and that is the statement.

          2. i also did not say that the said pattern covers all human activities. i just said that this is a kind of activity that happens, and i also say that very common and important. i also did not say they succeed. i deliberately stated that they try.

          the goal of this exercise is to show that meaningful claims can be made that we can accept without experimentation. we believe these are true simply using logic and introspection. if these were false, it would have very weird consequences to our way of existence. (like free will and so on.)
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        Sep 29 2012: "the goal of this exercise is to show that meaningful claims can be made that we can accept without experimentation. we believe these are true simply using logic and introspection. if these were false, it would have very weird consequences to our way of existence. (like free will and so on.)"

        That is true. We cannot live solely by evidence, since in the real world we don't actually have evidence most of the time. However, my point is not that meaningful ideas cannot be developed without empirical observation. My point is empirical observation is the foundation of science, and rationalist ideas that lack evidence are not science.
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          Sep 29 2012: and my point is that meaningful ideas can be developed solely on such easily believable statements. that is what austrian economics is all about. you need to accept not any more far fetched claims than what i have presented. it is possible to build an entire economic theory including the theory of banking, firms, money, capital formation, interest rates and all such stuff on a purely commonsensical basis.

          whether it is science or not, i personally don't care. mathematics is science? yet, it is a very useful tool. similarly, austrian economics might not be science, but very useful.
  • Sep 27 2012: There are two kinds of freedom. Freedom TO - as in the freedom to do whatever you want. This is a vital freedom and necessary for markets and people to work properly. But then there is freedom FROM - as in the freedom from the consequences of other people doing whatever they want.

    Proponents do not seem to grasp that if you shrink the government you allow the "dogs to eat" whatever, whenever they want. I do not blame banks or business for being what it is. But no one puts the family dog in charge of the entire family's grocery budget. Adam Smith recognized that there were some arenas of society that should not be controlled by the market, he knew there were some areas where the public good should prevail. Somewhere along the line modern economists lost this view (I could wax eloquent about when and where that happened but I won't)

    Markets only work in a market bound by property and contract law. Both are currently eroded and need to be restored. That is not "big government" that is a different issue. It is the kind of solid law that allows markets to function.
  • Sep 26 2012: Modern economics belies the wisdom of Adam Smith. It applies one small subsection of John Nash and Ayn rand in the most narrow sociopathic interpretation. It has been used to the detriment of us all. People argue one theorist over another as if they were the word of god and thus must be chosen between. Nonsense!

    I choose Dan Ariely. Humans are not "rational" and markets reflect humans..... What the US currently has is the worst of all economic models: Privatized profits (with no regard whatsoever to the loss of resources) and socialized losses (with no regards to the loss to the people). If I told you you could take my credit card to Vegas and gamble to no limit, that you cold keep all of your winnings but that I would pay the losses, would you gamble wisely? Of course not!

    The quants and computers took the market into a whole new direction. The consequences must be dealt with. You cannot have infinite growth. That is called cancer. The entire field needs to take a serious hard look at itself and consider starting from scratch.
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      Sep 27 2012: The only thing that needs to be changed in the market place is to get government out of it. Sorry but it really is that simple.

      The other more important thing is to shrink goverment a lot. The rest will take care of itself, but only if it is allowed to.
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        Sep 27 2012: have you forgeted the30' ecnomics crisis. you need too much of freedom .you develope as yo like ,you develope regardless of the scientic way .that government should do something about the economic .
        while i admit that government shouldn't do much about it but we also can't let it developed in a nature way . because we have the lessions isn it
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          Sep 27 2012: The 30's crisis was created by government. So no that is not true. Your government has changed the economy as well and will regret it.

          The lesson has been skewed by politicians who benefit from lies.
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        Oct 2 2012: Sorry Pat, I disagree. In ANY mechanism or system (that actually functions) there are always 2 (two) feed-back cycles (or loops). One is a positive feed back and one is a negative feed-back. Our banking and stock systems have lost the negative feed-back loop (actually had it removed by Congress over the last 30 years). The result is the system we now have which is oscillating faster and faster until it self destructs, because there is only the positive feedback loop.....
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          Oct 2 2012: Are you saying that they are not accountable?, if so I agree. But it is the central banks buying up the bad loans from Freddy and Fannie that has allowed banks to continue that should not.

          Anyway yes shrinking government is what needs to occur I will agree to disagree.
        • Oct 3 2012: Fannie and Freddy have nothing to do with. Yes, government do bail out banks but you are mistakenly believing that bankers fear their banks collapsing, they don't fear anything as long as they get rich. Even if the banks were accountable the bankers themselves wouldn't be. The sad reality is that when you are a hotshot banker or CEO you can make much more money by blowing up your company through reckless risk taking and then pillaging the pension fund and cashing in your severance check when the company comes crashing down.

          This is not 1902, companies are not run by liable owners anymore and that has nothing to do with the federal reserve.
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        Oct 2 2012: hi Pat,

        Let me just stir with my spoon here, and take whatever fire i deserve for it. I remember us talking about our memes and how they shape our discourse in these debates, yet i hear a lot the meme of "big government is bad" without much willingness to split the issue in parts that might be more palatable to others... I am with you... i am not fan of the government and it should definitely stop sticking its nose in so many areas where we can decide better.

        But is it not a bit of a jump to keep saying as a blank statement that "big government is bad"?
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          Oct 2 2012: The definition of a meme:

          An element of a culture or behavior that may be passed from one individual to another by nongenetic means, esp. imitation.

          I am not regurgitating a meme. I am quite well read on the subject. My answers are not glib. I don't think unless someone has been in business they have a full appreciation of what I'm talking about and even then there are plenty of business owners who are ignorant on this subject.

          Consider this simple point, the standard of living we enjoy today was created by individuals not governments. Anything to the contrary is a meme that is exposed with the most perfunctory examination. Was it Edison or Tesla or the government that brought us electricity, was it Bill Gates or Steve Jobs or the government that brought us the computer, was it Henry Ford or the government that brought us the automobile, was it Orville and Wilbur Wright or the government and Samuel Pierpont Langley who brought us the airplane?

          Consider this simple point government regulates individuals at a cost that does not have to or does respond to the market place. As a consequence the cost has no constraint and becomes extremely onerous on the individual both financially and culturally. This prompts me to say that the smaller the government the more the individual will prosper which has been proven the only 2 times government has been reduced in cost under President Reagan and Under President Coolidge and Harding, both times there was big prosperity for all the citizens.

          I have always found the truth to be simple which may sound obtuse but it is not.
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        Oct 3 2012: I stand corrected... I know that you are well read on the subject, and i can see that you are not regurgitating somebody else's idea here

        So indeed not a meme... more of a generalization i would say then. There are many points in which i agree with you. For example, in the fact that it is people, and specially creative people, who has contributed to the standard of living we enjoy today. Or the fact that government is a blocker rather than promoter of advancements. But challenging the generalization that all big government is bad does not mean I give the government credit for any of that.

        At the same time, equating business to creative people is another generalization that i do not buy. Business is not the source of creative people, it is certainly an enabler, but most cases it's the other way around.

        Now, is the government too big? of course it is! Believe me, i see it in the chunk of my paycheck that goes away as taxes every payday. I see it in the thousands of useless pieces of legislations that are passed year after year and serve very little to advance that very same standard of living

        But any analysis of the economic prosperity in the USA that does not take into account the wars that were being fought at the same time, or the economic impact on other countries around the world at the same time, is bound to be an incomplete analysis, no matter how good the theoretical models may be
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          Oct 3 2012: I did not say creative people, I said created by individuals.

          When you are the most successful, people will attack you it is the nature of this sort of thing.
          Wars do not bring prosperity they cost in inflation and they cost in goods that are expended without any lasting benefit. I think the military industrial complex is a form of crony capitalism.

          I don't know what you mean by an incomplete analysis?

          But there is no question that the United States has brought the standard of living of the entire world up more than any country in history.
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        Oct 3 2012: I think it was me who said creative people. Even though creative people are a subset of individuals, it is the former and not the latter the group I was referring to. A private investor (another individual) may enable creative people to come up with ways to apply their ideas (by providing resources) and the application of these ideas is what will eventually translate in prosperity for many. I do not intend to take away from the credit the investor deserves, but i think that attributing the prosperity to the investor is a bit of a misattribution

        Not sure if your comment about being attacked because of being successful is at all related to my comment on war.

        But wars indeed are excellent business for some people, they cost you and me in taxes and they cost the attacked countries even more than they cost us, but someone pockets those dollars. Yes indeed, the military industrial complex is a form of crony capitalism!

        By incomplete analysis i mean that economic prosperity does not happen in isolation. Cheap oil from countries like Kuwait ,Saudi Arabia, Iraq and others has also contributed to sustain the economic prosperity that we enjoy here in the USA

        All i am saying is that we must recognize that there are more aspects to analyze than just the technological advances exported out of this country
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          Oct 3 2012: It is the investor that creates jobs, your disposition on investors is irrelevant. The reason this country is in a recession is because the investor has been scared off by the current POTUS. The reason that the great depression lasted so long was FDR (a vampire type personality) scared the investors for about 15 yrs. Investment makes the economy boom over investment makes it crash. The sun sun may or may not come up tomorrow, but this is just a fact. I suppose you might have a hard time with such a broad statement but get over it, it just is.

          The comment about being successful was in reference to the United States.

          The free market connects everyone in the world we are inextricably connected which is a good thing. The sheiks then get to drive around in Roll Royce s and buy those stinger missiles they are so fond of etc.

          There are plenty of valuable goods and services exported by every country.
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        Oct 3 2012: When talking about investors and creators, I was basically thinking about the examples you gave of individuals who have contributed to our current standard of living. Edison, Tesla, Gates and Jobs, Orville and Wright versus the state. And I agreed with your assessment. I would never give the credit to the government, but i would also not give the credit to Rockefeller or Morgan or the Lehman Brothers, FDR, Reagan, Obama or Bernanke.

        Investors create jobs when there are creative people whose ideas can be invested in. Rarely do investors come up with the ideas themselves

        The free market theory provides us with a fantastic framework to model how economies work (or should work), but in some regards i find it very idealistic. It does neglect the human aspect of both producers and consumers, and it does not capture all the costs of production.

        It is evident to me that everyone in the world is connected, but it is well beyond the free market... if you see the rolls royces in the street and cannot make a connection between that and hundreds of people who lost land (or was paid pennies) to oil well drilling, then we are definitely talking about two very different kinds of connection
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          Oct 3 2012: Rockefeller did give people lower energy costs, Morgan financed Edison, FDR was a ..., Reagan gave the country 20+ yr of prosperity and broke USSR Reagan was the man, O and B should be take out and ...

          Doesn't matter the creative would not do anything without the investors.

          Fantastic = bizarre or crazy?

          It absolutely is the antithesis of neglecting the human costs, it has the ultimate respect for the individual and his accomplishments and liberty. The free market captures all of the costs of production. If the consumer requires that the diamonds are not blood diamonds, that the company is green, that the company does not use sweat shops then the company will change or perish. If on the other hand the consumer does not really care they will go ahead and buy the I phone produced in the swear shop because what they really care about is being the first kid on their block to have a I phone 5.

          If the people sold the land they were happy with the transaction or they would not have mad the exchange. If the worker agreed to work for pennies, he considered this a better deal than subsistence farming or he would not agree to do the job.

          No kidding this is what has brought the standard of living up for the whole world. And before you feel bad for these people realize that they do not feel bad for them selves they are damn happy to get the opportunity to improve themselves. Realize that 10 years ago that the per capita GDP in China was $500 today it is $7500. These are the facts that I'm talking about, screw conjecture.
        • Oct 3 2012: Extremely wealthy individuals claiming that extremely wealthy individuals are necessary for investment are shams. There is no reason to assume banks, corporations and pension funds can't make the same investments with less overhead cost and more expertise.
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        Oct 3 2012: I meant fantastic as a compliment, not bizarre or crazy.

        Regarding investors and creators i guess we will have to disagree... i see both as necessary to foster prosperity, whereas you seem to be of the opinion that it is investors who matter and should be catered to.

        "If the consumer requires that diamonds are not blood diamonds the company will change or perish". Well, in a completely de-regulated market, it is easier for the consumer to remain oblivious to the fact of where his diamonds come from. Who would force the producer to disclose such information?

        I was lucky enough to have visited some sweatshops in Mexico way before the clothing industry moved manufacturing overseas. And i can tell you first hand that it was not conscious or green consumers who forced producers to change their labor practices. I think you are giving free market way too much credit there.

        Have you ever seen people being displaced to make room for "progress"? I hope that you are not serious when you are assuming that they had the option of "not making the exchange" if they were not happy with the transaction (native americans were not happy with the "purchase" of their land either... did they have a choice?)

        Before telling me that i should not feel bad for these people, i should tell you that i have seen them first hand, not through references or theories... and with all due respect to you Pat... to say that they do not feel bad for themselves shows your ignorance about their real condition
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          Oct 3 2012: Consumers do force the market place to change, they have the car companies making eco friendly cars, furniture that is made using green certified wood (way more expensive), and boycotting chicken restaurants whose owner spoke out against gays.

          People get displaced all the time in this country in the name of progress, for instance those jobs in Mexico came from American workers, remember the jingle about American union sewers in the 70s?

          However many hours the person works in a factory it is less than what they work on a farm with a great deal more certainty.

          Have you ever seen someone starve to death? I'm going to guess that whatever you have seen is a damn sight better.
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        Oct 3 2012: Yes Pat, consumers can make the market place to change, i agree with that statement. But their impact is limited, many other factors have changed the market place in the last century, including those annoying worker unions. All i am saying is that one should not try to attribute that "invisible hand" of the market powers it does not have

        People has been displaced in the name of progress, but the theory does not agree with the practice, Pat, here in the usa, a percentage of the original textile workers went to other more skilled industries, another percentage moved down the ladder, and some never found jobs again. The same cycle happened when those who moved to computer manufacturing lost their jobs to Mexico. Some got better jobs in services, many moved down the ladder, and some never found a job again. The theory is beautiful, but new markets never make room for all the displaced workforce, it is no surprise that more and more people starts sucking from a paternalist government in order to survive

        And since the same cycle repeats in Mexico, and later in China at an ever lower cost, i do not see this as a virtuous cycle, but as a slow downward spiral. The problem is that out of 10 people who worked in a farm, 3 get jobs and 7 lose them (that was a guess estimate i heard from people living in mainland china, not from calculating back from their country's GDP) And no, their job certainty didn't really go up much, as shown by the massive layoffs in 2009 that we don't hear much about here

        I have seen kids starved to death that were abandoned by mothers that probably were close to starving to death too. My problem with that is that there is barely any relation between these mothers and the "invisible hand" of the market.. most of the people that i have seen survive in such condition are not saved by penny paying jobs, but by altruistic help from others. But please don't tell me that they should give all the credit for their survival to an investor
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          Oct 3 2012: Those annoying unions are particularly annoying here is Calf and are driving the state broke. The government is the number one influence that negates the invisible hand.

          The number of jobs in the U.S. has gone from 24 million in 1900 to today around a 140 million if no one got a new job how is that possible?

          Maybe that is the problem your information is anecdotal?

          First of all that altruistic help is more often that not from the investor. Also how much of it actually makes it to the victims without being intercepted by the warlords or corrupt government officials?

          What does work is something like this:

          http://www.ted.com/talks/lang/en/jessica_jackley_poverty_money_and_love.html

          Is this what you picture when you think of an investor? I see your point she is clearly insidious?

          They should give all the credit for their survival to the investor.
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        Oct 3 2012: Ah, if you think you have it bad in california, you should have seen the ones in Mexico back in the 70's Pat... If it wasn't because Mexico had lots of oil reserves, those unions and the government would have taken the country down the drain in a matter of a few years.

        I stand corrected, 24 million jobs in 1900 to around 140 million today, compared to a population growth from 76 million to 314 million according to the anecdotes from the US census bureau. Meant that in 1900 there were 32% of the population in the workforce, compared to 45% today. Sad thing is that other 55% not working today suck up many more tax dollars (in percentage) than the 68% did back in 1900. And, by the way, what does the free market theory say about that 55% not in the workforce today (kids and elderly and disabled and actual unemployed)?

        Completely agree with you, most of altruistic help is lost on the way, specially when the organizations handling those funds grow too big. But not all that help flows through governments or warlords.

        I loved the presentation on microfinancing, thanks for sharing it, and yes it is indeed a great project and something to support. I have also seen it work when the help is not requested back as payment, but when the recipient in turn passes their own help to someone else to help them started. Would you say that since the second example is not investment, it is bound to fail? Is it corrupted?

        When i say an investor does not deserve all the credit, I think that you are falling pray to a black and white definition. I have worked in the private industry for almost twenty years. Not all investment is born equal, i don't think investors are like satan, something that must be fought. Nah. Leave that to extremists. I think that some investors help more people than others, and some investors screw more people than others. No reason why we could just support the former and screw the latter
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          Oct 3 2012: That is interesting about Mexico, that explains some things, they are damaged.

          It doesn't say anything other than the high unemployment rate, calif being higher than most states. The only real correlation that there is is a bench mark is the investors have withdrawn from the loco government.

          Yea no kidding look at the salaries for the executives at the red cross.

          It is just not a good idea, giving someone something makes them dependent on someone else and from a humanitarian aspect it has a bad effect on them it does not empower them which is what is so beautiful about Kiva. At the end of the day that is all I'm saying empower the individual.

          I think the way to judge someone is to look at what they do not what they say. In the case of the investor that is what I think is workable. The amazing thing about this is no matter what the intention of the investor he raises the standard of living for all he comes in contact with willy nilly. From that aspect it is black and white. Remember the investor is taking a chance, for what ever reason, it will be a period of time before he realizes any profit, so he is going to do what ever he can to make it happen.

          There is a dark side to capitalism that you did not bring up but should be mentioned. That is when the entity profits with no exchange through inflation or banking manipulations or crony capitalism as with the FED and QE3 which will keep big bank insulated from there own transgressions and thereby forestall economic improvement.

          Nice Dialectic conversation btw. a rare phenomenon here on TED.
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      Sep 27 2012: let me guess that you are no economist. adam smith is so so. they use some of his theories. nash is mathematician, what he said is unquestionable. rand has very negligible influence.

      only they remembered smith! but they don't. they subscribe to keynesian views.
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        Sep 27 2012: hello pat gilbert
        maybe what yu said is alright.
        my queation is that .how can you prove it
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          Sep 27 2012: Krisztián

          I listened to your link on fractional banking good speaker but he did not talk about changing the fractional reserve rates, that I heard?

          In your above 1st two reference they don't say much about the money supply being held back. Milton Friedman and Ben Bernanke both say this was a major factor?

          The other factor they do cover was Hoover's Smoot Hawley act which was absurd.

          Apparently the Mises institute puts most of the blame on FDR keeping the investors nervous, which is always the case with any recession. This is eerily prophetic of the current POTUS.

          PS

          the video at the 3rd link in Krisztians post is in 2 parts he doesn't start talking about the great depression until part 2. But I'm probably the only one who will watch this? But the second part is very worth watching. My take is that things are caused they don't just "happen". What was great about this was just how far you know who went in causing the great depression. PJ O'Rourke made the comment that when they came out with a FDR postage stamp that it confused people because they didn't know which side to spit on.
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    Sep 26 2012: conventional economics is utterly wrong, and nothing more than that. it would be cool if we stopped calling each other insane because we have different views.
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      Sep 26 2012: Sanity is based on agreement. If you say you see a pink elephant but nobody else does you are called insane. Of course from your viewpoint you see pink elephants or giant rabbits or Keynesian economics, etc.

      Economics by definition requires agreement, economics requires sanity, if you want to indulge in Suzuki's world you are indulging in something that is not real.
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        Sep 26 2012: but that does not make mainstream economics brain damaged. especially that a lot of very smart people practice it. it is not considered mentally ill, and we don't want it to be considered so. we want to put it in the realm of incorrect, unsound theories.
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          Sep 26 2012: "but that does not make mainstream economics brain damaged. especially that a lot of very smart people practice it."

          Define smart people.
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          Sep 26 2012: If economics were a person, then he would be a narcissistic psychopath with chronic obesity ;-)
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          Sep 26 2012: Again it is all about agreement. Main stream economics are what is agreed to or should I say brainwashed into agreement.

          I hear what you are saying though this as with many things in life is a PR problem. Keynesian economics is widely accepted because it benefits the politicians so they PR the hell of it and after 70 or so years it is accepted as a fact which means it is agreed to.

          The PR can be changed, as they say down at the AA meetings, we first have to realize we have a problem
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        Sep 26 2012: look, let us formulate the question this way: would you want to lock up someone for believing in keynesian economics? would you consider such a person not worthy of discussion? would you fire someone from an unrelated job because of that? or even, would you say i'm never drinking a beer with someone keynesian?
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          Sep 26 2012: 1 Maybe, in the rubber room in the case of Paul Krugman, He won a nobel prize in economics that is much agreement there is on this crap.

          2 Yes about economics

          3 No

          4 I have to drink the beer because of their ilk
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        Sep 26 2012: if you want to lock up krugman, you are not my friend. i would drink a beer with him.
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          Sep 26 2012: So be it and you are nuts...

          Oh and in case there is any doubt I am not a nice guy.
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          Sep 27 2012: A friend of mine tells me that are two Paul Krugmans one who wrote a decent economics text book that is a actually not Keynesian the Paul Krugman I'm familiar with writes a column in the ultra left left New York times and appears on television shows and is a staunch Keynesian. Needless to say I don't like him while maybe not nuts, at the very least has bought into a specious meme.
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        Sep 27 2012: i'm too talking about the krugman, nt columnist, nobel laurate, and detached from reality.