Friday, March 27, 2009

A sentient thing

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That is how we appear to think of and describe the economy.  Since the days of Adam Smith, we have had this idea that the ways of money and of the economy are the actions of a peculiar form of sentience.  I especially love the idea espoused by the “efficient market hypothesis”.  That prices act as some sort of supercomputer, reflecting the “true” price of things.  We are currently coming to understand the complete stupidity of this bit of academic fluff.

As I have already admitted, the bulk of my academic knowledge in economics was drained from my brain cells in recurrent drinking bouts with a linebacker from Eau Claire.  But my memories of the theories and practices described to me in macro then micro economics still raise a spate of giggling.

Prices are usually reflected best in and are a symptom of the madness of crowds.  Bubbles and ponzi schemes and manipulations of the market by any number of actors appear to be the norm.  This has been so since the time of John Law and the Mississippi bubble, they probably date back further than that, but I am too lazy to go looking for citations.  Governments overtaxing and going bankrupt are commonplace.  Business cheating and colluding and overcharging are equally common.  The only common ground is that one of the other (government or business) usually has has first pick during any particular time.

So what say we stop thinking about the mad chasing of lucre as “the economy” and thus stop incorrectly anthropomorphizing it as a sentient, controllable thing.   I think a better analogy for the wheels of commerce would be that of an ocean, with its tempests, calm harbors, and tsunamis.  Then we might have a better chance at a sufficient understanding to live with it. 

3 comments:

Publius said...

Very good point, Sir. The word economy, from the Greek, originally referred to the science of running a household.

Maybe we should get back to that ancient meaning...
Keep up the good work.

Did you get a turntable yet? (I'm not trying to sell you one, just curious)...

Mayberry said...

Well put. "The Market" will do what it will. Any controls are usually simple to bypass, and they are bypassed on a regular basis. This also shows the fickle nature of the human being, as the individuals who holler for control are usually the same folks who bypass said controls.....

Maitreya said...

You can't fight the waves, but you can learn to surf.