Meditation
2008:2 from the
Dear
Friends,
Thanks for
all nice words you have sent about my somewhat provocative meditation on the
state of the so-called economic science. Even more I want to thank a friend of
a friend, who said he didn’t like it at all. Because such a reaction forces me
to think a bit deeper.
He had four
points: All my figures were wrong. All my examples were irrelevant. He suggested
I wanted to turn back to the Renaissance. He asked what I really was after.
I have some
problems with him. The only example he is giving of my wrong figures doesn’t
exist in my meditation. But, of course, it is a normal trick in polemics to
give one figure that is wrong in you opponents paper and then say all his
figures are wrong. Also, just a point of logic: How can you know if examples
are irrelevant if you don’t know what an author is after? And I seriously hope
he didn’t want me to waste time on Enron, Arthur Andersen, Parmalat, WorldCom,
Siemens and such common shabbiness in the life of economists?
But with
pleasure I will pick up his idea of going back to the Renaissance! It is a good
one, but, no, it’s not enough for me! I want to go back to the
In the best
Italian news paper, Il Sole-24 Ore of 16th of April, the head of the
U.N. World Food Program complains that the price of the rice he is distributing
to the poorest in the world has risen seventy percent in the last six weeks. Emperor
Diocletian had a similar problem. In the year
Irrespective
of all economic theories, since at least
With all
respect for his good intentions, what Klaus Schwab, whom I mentioned in my
latest meditation, now says, in his article in the first number of Foreign
Affairs 2008, is not much different from what was said at the beginning of the
Davos Forum, thirty years ago, when I too had the honour of being invited to
give a lecture there.
So much for
a bit of polemics. Now to the serious question: what am I really after?.
1. The rationality of herds.
Once upon a
time I gave a lecture to media people on our financial system. In the middle of
it I had a few accomplices to throw out a million Swedish kronor over the
public in the form of thousand small papers, of a banknote size, with the
inscription: “THIS PIECE OF PAPER IS WORTH ONE THOUSAND KRONOR – if you can get anybody to believe in that!”
I don’t
find the “subprime” crisis to be too far from that joke!
Most
economists assume that individuals act in a “rational” manner. My strong fear
is that they do not.
Man is a
herd animal. When the stock exchange goes up, everybody wants his share, so much
so that they come close to lemmings. When the price of houses go up and up and
credit seems cheap, the herd runs for a piece of the house pudding. As a result
we get a subprime crisis.
Economists
can hardly understand reality without some study of mass psychology. Why not
mix all Glasperlen-mathematics with a few easy classics like Gustave le Bon’s La phychologie des fouels, or Emile
Zola’s Money.
2. Bankers, too?
That the
masses are herd animals is well illustrated by their herd buying and selling on
the stock market. But how is it with the leaders of these masses, with the best
bank and business economists?
May be that
UBS only lost a total of 4,5 billion in 2007, the figure to which my friend of
a friend refers and which is not in my paper. But insistent newspaper reports
that of the subprime “pieces of paper” UBS at one time had wagered as much as
80 billion dollars, “a gambit the bank lost. UBS has already written down about
$ 37 billion of that financial dice roll, more than Citygroup, more than
Merrill Lynch, more than any other bank in the world.”. According to the first
page of International Herald Tribune on April 5-
The “pieces
of paper” were not so valuable as what these bankers had expected. And similar
subprime figures with which the International Monetary Fund and the Bank for
International Settlements are now working, do indicate that a lot of bankers
have behaved just like the blind masses,
as quite irrational herd animals.
Let me give
a less important but more amusing example from the latest “bust” before this
one.
Just one
amusing example: In my highly “rational” nation of
The
Association of three thousand top business economists with nice diplomas went
broke and bankrupt! Ain’t rational! It’s herd psychology!
I don’t
know why I come to think of it, but in the lovely operetta Gräfin Mariza the
Gräfin calls one of her mail suitors a “diplomierte Esel”.
3. Is the herd animal now killing its own
Creator?
I do have
some other worries about the deficiencies of the so-called economic science,
but in a short meditation I will here only give you my worst night mare dream.
Admittedly speculative.
For many
years I have been a fan of Rig Veda, something much older than Diocletian. It
suggests that mankind is eternally going around in circles, “like a blind man
led by a blind”. The same problems, for an unchanged human nature, recur time
and again, but at an ever bigger scale.
What I am
sometimes asking myself is if the leaders of the fabulous success of the
capitalist Ersatzreligion since the Renaissance have formed a new and now a
global herd, speculating in what they hope will be an ever continuing boom in
one real estate that is infinitely more important than the subprime houses,
namely the gifts of Nature.
Success?
Yes,
certainly!
And that
not only for the three top hedge fund speculating individuals who in 2007 are
said to have earned over three billion dollars each, about as much as some four
million individuals at the bottom of the global hierarchy, together, have to
live on.
But also
for just these four millions!
Since my
friend’s late Renaissance, mankind has increased its numbers more than tenfold.
This has certainly been so thanks to the many technical innovations,
coordinated by growing financial institutions like UBS, IMF and BIS, that the
capitalist system has built and that, at the end of its many activities, has
produced ten times as much food per year as, say, in 1600.
That is
certainly a wonderful success. But it has been done at a rather lamentable
double cost. In some ten generations before us, our Juggernaut has not only
killed hundreds of millions of human slaves or enemies but also much else of
what once was given life by our true Creator, natural nature, such as it was
before agriculture.
Since the
Renaissance we have, indeed, had an enormous “boom” for human life! That is, of
course, something for which we all should be extremely grateful. Not least the
poorest ones who would not have lived without it!
My fear,
however, is that the leaders of our global world now have been blinded by this
success into an almost fanatical belief that “economic growth” is a panacea
that will solve all problems, a Saviour who will give both food, life and
happiness to several billion more of humans. Like some three billion Asians now
try to do, these new billions will also want to climb up to, at least, the
average Western material standard.
Watch out!
In serious evolutionary teaching the concept of “progress” does not exist. Only
that of “change” does. “Booms as well as busts.” And it is sheer stupidity not
to understand that also the human animal is, to a very large extent, subject to
the laws of evolution!
Might it
not be a good idea if we questioned our present belief in economic growth as a
panacea and instead listened a bit more carefully to wisdom such as the
Ecclesiastes, Buddha,
Capri in April 2008
Gunnar Adler-Karlsson