Human behavior and economics
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.