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Traditional economics are bull!

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The supply-and-demand theory no longer applies.

Our politicians are forever talking about economic principles. We are forever confronted in the media by economists sprouting economic theory, while predicting the outcome of  policies and initiatives with varying levels of accuracy.

For some time, I have wondered whether any of these politicians and expert economists really understand what they are talking about. I have concluded that they do not. Many just seem to like feeling that they we have some control and the insight to predict. Or perhaps they just like the sound of their own voices.

I used to wonder whether traditional economics were valid any more. Can we really depend on the utterances of Milton Freedman, Adam Smith or John Maynard Keynes? I have concluded not. They seem to me to be working hard to make sense of what makes no sense.

Let’s take two examples:

  • Economic growth
  • Supply and demand
  • We hear an economist or politician talk each day about the importance of economic growth, as if perpetual growth is either possible or truly desirable. In the short term, economic growth may well drive employment and wealth, but in the longer term:

  • It is not sustainable. We will eventually run out of the required resources, which are available in limited volumes.
  • Perpetual growth, even if possible, is not at all desirable – as evidenced by the mounting pollution around the world and the threat it poses.
  • Many days, we also hear politicians and economists talking about supply and demand – one of the basic tenants of traditional economics. Just last week, I heard Scott Morrison talking about the shortage of affordable housing in Australia being a supply side issue, while the ALP contends it is more about accelerated demand fuelled by negative gearing.

    For supply and demand to be valid as a theory, it requires:

  • Perfect information
  • Perfect access
  • Perfect rationality
  • And the facts are that no one has perfect information, few have perfect access and very few people make decisions on purely rational grounds. Some 80% of purchase decisions are made in the reptilian brain – with little, if any, rational thought.

    Traditional economics are bullshit .... we need a new paradigm!

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