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6 . 3 0 . 0 9 Moving this journal over to the webomatica site. One of the gaps that I noticed from the first day of Econ 101 was the concept of "all things being equal" that applies to every economic model to correctly map out an economic theory to precision. Here is the supply curve and here is the demand curve, the point they meet is the equilibrium, sets the ideal price for an efficient market. In a way, Keynesian theory states that all things being equal, recessions and depressions can be avoided only by increased deficit spending and ever increasing access to credit. What I took away from day one was that this assumption totally ignores the limitations to any theory that assumes laboratory-like conditions to describe something as subjective and chaotic as human behavior. This is the same criticism that hard science lobs at the soft sciences as being impossible to test empirically. Almost like having an inferiority complex to the hard sciences and overcompensating the quantitative analysis at the expense of the qualitative analysis of human behavioral nuances, economics runs the risk of getting an incomplete conclusions, and at worst, ignoring contrary evidence. Another gap that I came across almost immediately was the concept of the rational market participant, that is, an individual given a certain amount of information about a market, will only pay a price accordingly to the supply and demand in the market. It goes to the heart of the assumption that people act rationally. I remember having a hard time accepting this theory on its face on the basis that very few people I know of act rationally at all when it comes to personal finance. You only have to take a look at the consumerist society to see how irrational the decisions that all of us make when it comes to buying things. Also, some of even the most established and respected economists have a difficult time maintaining their own personal finances, despite the assumption that they of all people should be in the best position to act rationally in a market. Again it goes to the oversimplification of human behavior to force an empirical theory with the goal of being able to test it. Rather than just admitting that some systems may be to complex to quantify with a high level of certainty, economics is pushed out as a hard science and backing to many social policies and initiatives. Experimenting with these theories might be ok on a smaller level, given the risks can be assessed, and the decisions can be made on those risks. But really is it worth spending trillions of future taxpayer dollars that we don't have on betting a soft science theory? Especially when we don't even have the money to begin with, and are instead mortgaging the financial future of our unborn children, grandchildren and great-grandchildren? All things being equal, that sounds pretty crazy, at the very least very reckless and irresponsible. 6 . 2 9 . 0 9 I find it interesting looking back at how I have developed my own views toward economic theory and analysis. I was always most interested in the human interactions to markets and economic policies, such as game theory, diminishing utility, and moral hazards. Over time I've come to the conclusion that people cannot be oversimplified into an economic model simply through quantitative analysis, and even more so any model that makes broad assumptions about human behavior is flawed and is vulnerable to the unseen, or black swan event. Some background: I came to study economics relatively later in my academic training, partly because my first formal class was in high school disappointed me greatly as I thought it would be more of a course on personal finance and investments, instead it was focused on macro level with exercises on international trade and role playing on global markets. I think this course may have turned me away from taking econ in college. It wasn't until after my undergrad that I took the basic college micro/macro econ as an unclassified graduate student at KCC. Later in grad school for policy analysis I got more robust training of micro and macro econ, along with statistics and econometrics. All of this in retrospect fit very well with the traditional Keynesian theory. In law school I picked up more of the operational understanding of economics through the regulation of financial instruments and commercial transactions, liabilities of creditor and debtors, and resolution of defaults through foreclosure and bankruptcy. Most recently, I've been learning about the personal finance side, retirement accounts, pensions, and labor law, all coinciding with most recent economic downturn. There's also the life observations, as much of my training has coincided with historically unprecedented economic times. My staple economic classes coincided with the government taking unprecedented steps monetary policy in more than 50 years. It was common for a professor to admit, after giving a lecture on a well established and accepted theory that what we were seeing in the real world at the time had never been seen before, and it immediately gave me cause to be skeptical of the theory I had just learned. In recent years following the dot-com boom and bust I've watched as the housing market has taken off and crashed hard, seen how many previously trumpeted assumptions and absolutes about personal finance and investing have been proven to be very very wrong. More than a few people I know have been hurt or crippled by ill-gotten financial advice that was seen as golden just a few years ago. So it should not be surprising that from early on I started noticing some gaps in the economic theories and models that make up the generally accepted economic standard of today, which is deeply rooted in Keynesian monetary theory. The answer to an credit-induced recession is not to pump more credit into an already over-leveraged credit market. In an era of high volatility and extreme market uncertainty you cannot force consumers to consume and borrow more money than they are willing to take on, no matter how large the monetary incentives are. Consistent with my other views on life, religion, politics, I refuse to drink the kool-aid and be indoctrinated into one view at the expense of other alternate viewpoints, especially when there is evidence contrary to the status quo. When a theory appears to be on shaky ground, its time to reassess and change course. 6 . 2 5 . 0 9 Vivid dreams lately. Going to an ancient temple, and was passing through an enormous stone courtyard full of religious statues and gardens. Along the way saw a lot of old friends from way back, some of whom I haven't seen in years, all sort of hanging out in the courtyard. I recognized a lot of old wrestling buddies, some sparring in a stone lined ring practicing grappling or sumo, others just hanging out with other friends. Didn't have time to stop and talk, but promised myself that I would stop by and catch up with them on my way back. Stopped along the way to eat some stewed pigs feet we brought along while we watched the crowds walk by. We cracked the joints up to get to the meat in between. It was salty and smokey, and bright red as if it were raw, but didn't taste gamey or bloody at all. Noticed some old stone statues outside the courtyard covered in candle wax from the evening festivals held the night before. The whole area was under the shade of large banyan trees. Remember feeling at peace without much sense of urgency, but also looking forward to getting on our way. I think vivid nature of these dreams have bad something to do with the fact that I've been bogged down in bar prep, lots going on on many fronts. Cut down my work hours to about half time, allowing me more time to study and get back into somewhat of a regular work out schedule. |