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Where Economics Fails

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Economics is nothing more nor less than the study of the primary way in which people connect with society and get on with their lives.

In everyday life, you may interact with a few people – family, colleagues, and friends. But through the process of eating and paying the mortgage you interact, at some distance, with hundreds more. Because this interaction is entirely through something called “money,” a way of keeping score, it’s very tempting to look at it entirely through numbers. The dizzying details of tens of millions of exchanges every day makes a top-view in bulk the most desired method of analyzing how things are going.

Yet this process has proven wrong over and over again. The failure of economics, particularly macro-economics, is the primary reason why the only true study of an economy has to be a People’s Economics.

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The Purpose of Corporations

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A corporation, by strict legal definition, is any group of people acting as if one for whatever their stated purpose. This definition is broad enough to include non-profits or NGOs. In practical terms, however, it refers to a an organization which makes something and hires people to do it.

But what is the purpose of them? Recently, it’s become very popular to assume that the main purpose of a corporation is to maximize shareholder value. That is, to grow and reward those who put their money down to make it all happen in the first place.

There are many reasons to see this need for constant growth as dangerous. Most generally, it’s not sustainable outside of the rate of population increase and productivity gains, at least once the entire planet reaches a similar level of development. But more important, the view of what a corporations is, or at least why it exists, is extremely damaging to its own stated purpose.  And it’s easily shown to not actually be true in practice.

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The Failure of Money

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Economics is all about money, right? It’s all about theories on how to distribute it, use it, make it, or protect it, yes? This is a common perception, and the focus on money dominates the area of political and personal understanding of all things related to important concepts like markets and wealth.

Yet there is substantial evidence that this is simply inadequate at best, wrong at worst. The purpose of money, according to a rigid definition, is to be a medium of exchange and a store of value. But there is quite a lot of evidence that as a store of value, a representation of accumulated wealth, it often fails horribly.

Money only works in a dynamic sense. There are several ways to read that statement, and they are all valid points.

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What is “Productivity?”

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Nine years ago, January 2010, was the bottom of what I’ve come to call the Managed Depression.  Here is a piece from that time which is still relevant.  At that time, we were awaiting a “recovery” and hoping for productivity gains to get us out of it.  But they didn’t.  And the core issues outlined here remain.

What would make a recovery sustainable?  If you ask an economist, they’d tell you that what makes any economy grow and prosper is, ultimately, what they call “productivity gains”.  That’s the ability to make more with less that allows a people to prosper.  During the 1990s this was given as the reason why interest rates could remain low and we could have one Hell of a party – a sloppy, hazy bender.  We live in the hangover that resulted, but have we really learned how intoxicating this one, simple idea is?

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What is a Bear Market?

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We recently stated that this is a “Bear Market.” So what does that mean?

It’s not all that scary, at least not once the market really settles into bear territory. In fact, it can be a great time of opportunity for many investors, particularly away from stocks. It’s worth spending a moment contemplating what a bear market is and why it’s important.

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