Economyths: Ten Ways Economics Gets It Wrong
From the Introduction:The main problem with our economic system is not that it is hard to predict, but that, despite its enormous productivity and creativity, it appears to be in a state of ill health. The economy is unfair, unstable, and unsustainable. But theory has no way of dealing with these issues.The economy if unfair. Economic theory is supposed to be about optimizing the allocation of resources. However, the reality is that the rich really do get richer. In 2009 one hedge fund manager earned over $2 billion, while over a billion people earned less than $1 a day. That’s a strange way to allocate resources.The economy is unstable. According to theory, the “invisible hand” should keep asset prices at gold, and hard currencies are subject to enormous gyrations. In later 2007 the price of oil surged to over $140 a barrel, then plunged to under $40, all in the space of a few months. Oil is often called the lifeblood of the economy, but our blood supply is much better regulated. For a while it seemed the economy was having a cardiac event.The economy is unsustainable. According to theory, the economy can grow forever without encountering limits. The reality is that we are bumping up against hard constraints due to things life over-crowding, climate change, and environmental degradation. As environmentalists point out, never-ending growth is the philosophy of a cancer cell.Together, these problems far exceed the importance of an event like the credit crunch. The debt that the global economy is building up with the environment, or the debt of rich countries to poor countries, is of much greater concern than the debt of banks to governments or shareholders. Indeed, it may turn out that this crisis was a blessing in disguise, if it provides the impetus for us to rethink our approach to money.