Economic Redaction.

Study Economics?

In any book shop over the past few years there has been a plethora of ‘economic’ books that have taken to offer a critical over view at the shape of the world economy but more particularly at the travails of the failing of economics in relation to the direction and impact of one element economic modelling, the theory of market forces and its relationship with the overall progression and impact of economic policies. This view has often been focused on particular aspects that have come into sharp focus from the fright of the (liquidity) Credit Crisis of 2007/8 and now the uncertainly of when the next, more disastrous one, will occur. Within this ruinous presumption, some economists do say it portrays a wholly unrealistic and pessimistic outlook. For with the success of the current economic systems, it can overcome short term ‘blips’ for ‘it’ has as a way of self correcting excessive exuberance to recast stability. However within either analysis of high optimism as has been the case before or undue pessimism, there is little to identify the potential precursors to a likely potential catastrophic event that could break markets.

Disregarding the hackneyed phrase often used in situation of systemic structural failings, such as the 2007/8 surprise financial emergency, that “lessons will be learned” with the suggestion that new controls and system checks are to be implemented, after of course assessing causative weakness; nothing has been done to dramatically affect the underlying forces that are inimical to the instigation of counter measures required for a paradigm recognition of the limitations endemic within the application of rigid economic theory and unscrupulous  markets. 

Up to the 20th century the main aspect of economics had moved to a position of attaining the status of being seen as, if not thought of as a essential science. All that was known of economics and as was implemented, was taken as measurable indispensable facts postulated as the very best system for its global success and the proof of the ‘indisputable’ benefits; bestowed on the successful practitioners of the tenets of economics, to be evidenced in the speed and spread of wealth that no other proffered system could offer. Markets as postulated in economics were perfect tools to match supply/demand that should be free from any governing deformation influences other that the requirement for inter-trade agreement to commercial enforceable laws.

Up to the beginning of the 21st century the undefeated supremacy of economics was located in the basic premises of its foundations, that it was an ideal system that allows the human drive for free endeavours in trade and commerce to flourish for the enhancement of all, albeit it does reward the risk takers and entrepreneurs who create the opportunity for economic growth. This beneficence attitude was supported in the wealth that accrued to the successful nation practitioners and was often used as a proof of its supremacy match against the failings of other nations that adopted different models of administrative trading.

For a long time this legendary evidential example and the premises that maintained the corroboration of supremacy were not really challenged. Generally the economics that was compellingly postulated in economic academic study was constrained within the two prime camps of economic theory, with little serious examination of the implications of the disposable labour of matured or aspiring nations; neither the constraints of a matured nation economy, market globalisation, productive divergence or technological convergence were accounted for. The standard tenets of economics preferred too take no regard of any conducting hand other that there should not be one (particular legislative hindrances) and rested on the tussle between the two main camps of economics that fought for dominant influence within markets, by prejudiced lobbing, to influence government directive policies.

The two contending economic forces that challenge against any competitor may for condensed sake be explained as:-

1) Classic Economics - Supply and Demand: (Invisible Hand) classical theory is that the economy is self‐regulating and markets function best with minimal government interference resting on supply and demand; the variable tensions between scarcity and abundance of consumables and price determinates. This is often boosted with Laissez Faire Capitalism that calls for it to be trade and commerce free from government intervention such as regulation, privileges, tariffs, and subsidies.

2) Keynesian economics: Keynesian economics promotes government monetary and fiscal programs intended to motivate business activity and increase employment, especially during recessions or were private investment cannot serve the common good or private infrastructure ventures have stalled.

In both these theories there is an assumption that individuals will act and respond rationally to derive the best outcome, primarily for themselves but also meeting the requirements of whatever activities they are engaged with; accordingly adjusting their actions as a reasonable person would and by extension such activities, in competitive markets with this amalgamation of individual rationality directives, also aims to produce the best market outcomes, thereby markets, as a whole being of itself rational and self correcting.  

All this implied description of the two prime competitive ‘schools’ of economics, has rejected in a practical operational way over the past seven decades, any alternative view of economics such: as Neoclassical Synthesis (Keynesian for near-term macro, Classical for micro and long-term macro), Neo-Malthusian (Resource Scarcity), Marxism, Laissez Faire Capitalism, or Market Socialism. On very rare occasions, minor inclusions of element of their theories has had some force but not enough to change the intellectual capacity of the taught academically acceptable tenets of the application of serious economics, other than as proof that none of them on their own can or do work (re; Communism – Socialism).

With the exception of laissez faire as has applied to capitalism economic analysis, none has had any real effective major influence in the way economies have been driven over a sustained long period of time. Comparing the two prime contenders (Classic and Keynesian) one has been the bedrock of ‘rightwing’ government policies even though there is ample evidence of its unaccounted failures.

And yet surprisingly the hard proponent of classic and liberal economics, so expressive in the past as the driver of economies and used as the main study systems, have to a great extent disappeared from the popular print scene superseded by the many economic authors who as a majority are proclaiming the proven failure of the entrenched economics. These books have railed against the lack of equitable progress and point to the increasing wide diversity between the richest gainers and  the increasing discarded poor, the Increased lack of global market responsibility, the break with the convention that ‘things will always get better’; that there is unlikely to better future for one’s children, that investment will always provide opportunity and economic growth and crucially contend that economics that has infected political agendas has no solution to the conundrum of the global slowdown in trade, the rise in unemployment in wealthy countries and within the UK, the productivity stagnation and investment collapse despite achieving a higher employment but built on expanded low pay. The entrenched economic model and system devised to foster it has systemic developed consequences. These failing, expansively covered, are remonstrated against by such books and conclude that it (classic laissez faire economic model) is wrecked.  

Although the assumption within economic modelling is that individuals are deemed to act rationally, this is not by any means wholly true in all situations. If actions are required that conflict with emotions, rationality can be put aside and foster an irrational response that in itself could be considered as a logical reaction were the individual has knowledge of all available facts and has some effective control over the scenario in which they operate. In addition there is always the influence of herd pressure that does not necessarily respond or act to rationality but overall, again, can be seen as a logical herd response within markets however it could be assumed that not all participants are cognisant of all relevant factors at work yet will follow a lead direction.

The condition of rationality, although often suggested in economics and applied to markets is an applied falsity; markets cannot be seen as being thoughtfully rational, they responded to a huge variety of stimulus, increasingly algorithm driven and high frequency trading without any forethought or projective consideration and as the majority of trading is done on the basis of institutional / corporate demand, individuals have little rational input. This may be the weakness of believing that markets are self correcting and provide the bests outcomes, they are not ultimately self correcting or do they provide the best all encompassing outcomes. They can only offer the best outcome for some that understand and manipulate factors upon which markets rely on but in the event of a coveted systemic shock they have to liquidity dissolve.             

From this one might practically presume that the elucidation of economics and its application on and within economies is not really understood. At most it is really of an informed best guess, applied as in ‘all things being equal’ with assumption and variability that is a conceived prediction that markets within economics my act in a certain way and economies can be adjusted to provide certain effects. However the misguided application of economic theory warped in a preconceived dogma, as is often the case in politics, most certainly does have intended consequences that are created yet are hardly influential in adjusting the economic theory that is causing the unfunded negative consequences.

One might consider that the 40+ year experiment imposed on the UK by hard self serving political dogmas that were to a great extent promoted by the illusory beneficial progression that could achieved from the liberalisation of commercial and industrial market operators which were consistently lobbying for a reduction in government intervention and regulations that were a hinder, as they argued, to growth. The result of which was the adoption of a mixture of economic ‘mechanisms’ wrapped in the favoured monetarism of thatcher using the infection of industry and entrepreneurs calls for lower taxes and then they will invest more and create more growth; it did no such thing, they took the money and sold. It destroyed productive industry in the northern counties while London financial markets manipulation expanded. The result of which it could be said was a direct precursor to the impoverishing state of the UK economy now and a contributory element to the consequences of the 2007/8 CC with the ongoing inflicted austerity virtual pogrom by devious political dogmas.

It has been stated before on many occasions by critics of classic and laissez faire economics that the warning indicators of problems being thrown up over the past 40 years were blindly ignored; now all mature economies are sliding into a spiral of untenanted decline and one may, with a bit of scoping vision around current events reasonable (rationally?) predict that unless a new holistic understanding of economics is made evident; then it is difficult to avoid the conclusion that when presented with the evidence of endemic projected failures rational people will continue to dissemble with truth rather than be faulted.        

The overriding emphasis on classic economics that has contaminated the management of the economy has now created an objectionable constringent state, which is causing the proponent of relaxed economic management to hide for they have no solution to offer to the impoverishment of societies. None of the prominent professional economist, proponents of classic and laissez faire are in the public platform, currently subsumed by the raft of critical analysis that screech out at what has gone wrong. Economics as expounded over the past era no longer fits the need of matured and strangled economies; it is reaching the limits of its unchallengeable expansion, failing to adapt it has polluted rational consideration of ‘unconventional’ means to elicit corrective governmental actions. Modern economies have never been completely self regulating, without governmental influences as the provider of ultimate guarantor and protector, the transient wealth and growth of capitalism within economics eventually breaks down. The basic fundamental commands of it generates winners and losers too many of one over the other and obliteration is inevitable. It is absolutely foolish to contend that what economics is in play today can continue to survive, the inequality of its depth and reach shows no sign of self correcting prior to the next obvious looming impediment and as dissonance is exacerbated, social structure are unlikely to survive markets "self correcting".

© Renot

811171418

See market economy Oct 2003