The assumptions of the efficient market hypothesis and self equilibrium, previously widely acclaimed, led to unsound economic decisions. They created an intellectual complacency that overlooked the risks behind the ongoing structural crisis. New concepts should guide our future analysis and build the foundations of a new economic and financial theory.
Most importantly, new methodologies should now lead our actions in our search to achieve a much needed path to real recovery.
Econophysics have failed. They have also helped create the biggest ever Moral Hazard, justifying the formation of unmanageable oligopolies whereby risks and returns are misaligned. The public is forced to pay the rescue costs of an enterprise model that is an embarrassment to modern capitalism, transparency and democracy. Rationally we should identify this “distortion” as illogical and therefore consider it unsustainable.
Yet, as the recent revolution in the Arab world reminds us, history does not proceed in a continuous way but in irregular patterns. While truth and progress are unstoppable they advance chaotically and in asymmetrical moves. In this respect, world events are precious moments not only when they bring us closer to the truth but also because they help us to understand the evolutionary characteristics of social and human interaction; the mechanics of agents of change, the environment’s mutations, the shifts in the economic behaviour and in the thinking of mankind and what is inherited by future generations.
Like history, market prices and economic matters are not linear but discontinuous (i.e. do not follow lognormal distribution patterns which are instead at the base of most economic and financial theories). As the West goes beyond the industrialization phase, new technological advancements are hugely accelerating this phenomenon and the augmented connectedness assumes crucial significance.
While mainstream economic schools seem to largely snub the concept of reflexivity, we should be grateful to the financier and philanthropist George Soros, who has been focusing on this concept for a while, insisting to place it at the foundation of a new economic thinking.
Reflexivity has its beauty in that it reintroduces the human aspect of mankind in economics. That element of “undetermination” which makes us imperfect but real. And, let me say, imperfect but beautiful. That distinguishes mankind from all the rest and, with the growing enhanced connectedness, reflexivity is acting as the universal agent of global unity and progress. Reflexivity puts the initiative power back to human determination.
Economic theory cannot reduce humankind to be like computers, or to the physical matter where if an experiment is run a million times, the outcome is always the same. We are ever changing because reality is a flux; it is ever changing. In this new era this characteristic assumes considerable relevance. So, while repeating the same human experiment in space or time results in always different outcomes, trying to force human reality it into a strict codification brings only misery and it is unsustainable. And thankfully for that, we would otherwise all be robots or still slaves. The ever changing nature of mankind, this special evolution and self determination dynamic, is the real force of existence.
The “advanced” countries, now referred as knowledge based economies, are at a crossroad where they need to use their systemic knowledge if they intend to proceed and decide where they are heading to. We need to steer the path, because an automatic miraculous adjustment will not take place. There is no longer a place to hide and doing nothing is not a valid option. Thus, if we do not fix the structural problems, we just have to accept that more disasters will soon come.
Technological development speeds up the unstoppable emergence of the truth and it also gives us better tools to solve the unbalances. The world can now be a simpler, more direct, more transparent place. This may carry some disadvantages but it can be a huge asset for positive change. While privacy is lost (and this is not exactly necessary) and precious diversities threaten to disappear, the emergence of progress appears inescapable.
Connectivity is a fantastic facilitator that opens the door of opportunity, solves economic problems, abates costs, barriers, legacies and makes historical changes possible. It helps us to be comforted that all humanity has the same problems, needs, aspirations. So, this new connectivity makes us stronger, it gives us a certain integrity, and it helps us to realise that it is now time for real systemic determination and not to abandon things to go on their own.
WikiLeaks may have created controversy and embarrassment but it shows us that it is reflexivity that counts; that mankind is evolving, that the truth finally emerges and prevails. Thanks to technology and connectivity there is no power that can suppress individual freedom anymore or manipulate people or reality. Transparency will constantly increase and this is happening fast.
Mohamed Bouazizi was a young and poor street vegetable vendor who pushing his cart in the streets of Tunis was struggling to make a living and support his numerous family. Mohamed died after he set himself on fire in protest for the confiscation of his merchandise and the untempth humiliation that was inflicted on him by a female municipal official.
Mohamed’s action ignited a chain of events and reactions and inspired a peaceful revolution, a movement that is achieving much needed justice and democracy in the Arab world, bringing progress and prosperity; a dynamic process of change that the Western world should take in high example. Technology made this revolution unique, and contributed with social media, internet, mobile and satellite communication, that for the first time showed to the world a revolution in the making, live on TV.
Some months ago, the “miracle” of the 33 Chilean miners whose lives were incredibly saved, showed to the world that we can make the impossible; that hope never dies if we are determined, disciplined and use our available technology with intelligence and competence.
Equally, only new Systemic Economics, a comprehensive methodology for real economic recovery, a capital redirection Plan like I outlined in: Operation Direct Growth,will save the world from its deep troubles and it will be able to guarantee a bright future for generations to come.
We are all temporary visitors and we have a responsibility to leave this earth a better place for the guests that we will leave behind and for those that will come after us. Recent policies have made a mockery of this humanitarian necessity, instead forcing future generations to pay up and make good our mistakes.
Only by being constructive in a systemic way we will leave a sign in history. Then the positive vibes of our civilization will resound in the work of the generations to come, as an irresistible and “magic” contagion.
The markets are not abstract concepts: they are what we want and need them to be.
And if you have any better way – please implement it now.