Nine months ago I wrote about Design Orientation as an alternative to Finance Orientation — the model which has governed business thinking for the past 50+ years.

Today, I read an amazing article in the Financial Times by John Kay, a member of the advisory board of the Institute for New Economic Thinking and simply had to share it because it represents the first truly honest step in coming to terms with the failed economic thinking, theories and policies that have driven the world to the edge of utter financial and socioeconomic collapse. I am happy to quote the article below and also link to the author’s original source page:

The macroeconomics taught in advanced economics today is largely based on analysis labelled dynamic stochastic general equilibrium. The unappealing title gives the game away: the theorists are mostly talking to themselves. Their theories proved virtually useless in anticipating the crisis, analysing its development and recommending measures to deal with it.

A remarkably distinguished group of economists gathered last weekend for the inaugural conference of the Institute for New Economic Thinking, an initiative of George Soros. They were soul searching over the failures of economics in the recent crisis. Such failures are most evident in two areas: the inadequacies of the efficient market hypothesis, the bedrock of modern financial economics, and the irrelevance of recent macroeconomic theory.

The central idea of the efficient market hypothesis is that prices represent the best estimate of the underlying value of assets. This thesis has recently taken a battering. The boom and bust in the money markets was precipitated by a US housing bubble. That bubble followed the New Economy fiasco and was preceded by the near-failure of Long Term Capital Management, a hedge fund designed to showcase sophisticated financial economics.

The macroeconomics taught in advanced economics today is largely based on analysis labelled dynamic stochastic general equilibrium. The unappealing title gives the game away: the theorists are mostly talking to themselves. Their theories proved virtually useless in anticipating the crisis, analysing its development and recommending measures to deal with it.

Recent economic policy debates have not only largely ignored DSGE, but have also been remarkably similar to the economic policy debates of the 1930s, although they have been resolved differently. The economists quoted most often are John Maynard Keynes and Hyman Minsky, both of whom are dead.

Both the efficient market hypothesis and DSGE are associated with the idea of rational expectations – which might be described as the idea that households and companies make economic decisions as if they had available to them all the information about the world that might be available. If you wonder why such an implausible notion has won wide acceptance, part of the explanation lies in its conservative implications. Under rational expectations, not only do firms and households know already as much as policymakers, but they also anticipate what the government itself will do, so the best thing government can do is to remain predictable. Most economic policy is futile.

So is most interference in free markets. There is no room for the notion that people bought subprime mortgages or securitised products based on them because they knew less than the people who sold them. When the men and women of Goldman Sachs perform “God’s work”, the profits they make come not from information advantages, but from the value of their services. The economic role of government is to keep markets working.

These theories have appeal beyond the ranks of the rich and conservative for a deeper reason. If there were a simple, single, universal theory of economic behaviour, then the suite of arguments comprising rational expectations, efficient markets and DSEG would be that theory. Any other way of describing the world would have to recognise that what people do depends on their fallible beliefs and perceptions, would have to acknowledge uncertainty, and would accommodate the dependence of actions on changing social and cultural norms. Models could not then be universal: they would have to be specific to contexts.

The standard approach has the appearance of science in its ability to generate clear predictions from a small number of axioms. But only the appearance, since these predictions are mostly false. The environment actually faced by investors and economic policymakers is one in which actions do depend on beliefs and perceptions, must deal with uncertainty and are the product of a social context. There is no universal economic theory, and new economic thinking must necessarily be eclectic. That insight is Keynes’s greatest legacy.

On #jobs #economy #employment

Bruce Judson, senior faculty at the Yale School of Management and author of It Could Happen Here: America on the Brink asked the following question on his Twitter stream:

Question: Where will new good jobs come from? #jobs #economy #employment

My answer — over a series of 8 tweets — was as follows:

@BruceJudson The disconnect between government & industry on #jobs #economy #employment = due to culture gap in tech literacy.

#jobs #economy #employment Must be inspired by Pennsylvania Avenue, implemented by Wall Street and adopted by Main Street.

The problem is that the White House can’t make the connection between how they won the election (online…duh) & where jobs are

The future #jobs #economy #employment = online through social media (transparency between Gov, industry and consumers) as well

as virtual work—retrofitting corporate culture to eliminate costs associate w/’warehousing labor’, freeing $ 2 spend on remote

Problem is, you need people w/know-how (as to what’s possible) combined w/vision (as to how to bring old & new together).

Most importantly, you need the *desire* to *want* to make it happen, and I’m frankly not sure this admin has it…not sure.

And if *this* admin doesn’t have it, God help us when we shift to the far right due to this admin dropping the BIG ball. :/

10 Rules for Surviving the Post-Picket Fence Economy

I originally posted the following 10 rules on my Twitter stream. Enjoy:

1. Live within your means. Sounds simple enough, but don’t adopt a lifestyle you can’t support w/the CASH you bring in. Think about it.


2. Do not use credit. Plain and simple — you don’t need it. The bank is not your friend…they aren’t trying to help you. Stay away from it.


3. Use cash or debit cards. Debit cards have cute little VISA or MASTERCARD logos on them and work just fine. No interest — it’s your money.


4. Take RESPONSIBILITY over your financial life. Balance your account. Don’t OVERDRAFT — don’t let the banks profit off you. Play smart.


5. Stay strong & resist temptation. Don’t worry about what the neighbors drive or what cell phone they have. [ Minimize human contact. ;) ]


6. Do not fall for myths. Yes, the ‘narrative’ you see on TV and what you think you’re supposed 2 do are myths. Create your own wholesome 1.


7. Recognize the TRAP of the material world. We are born w/nothing & we die w/nothing. What we accumulate in our time here is not SPIRIT.


8. Recite the mantra: Debt = Slavery. Don’t turn into a debt slave. See the banks for what they are….master’a’callin’


9. Associate Success with Freedom. Freedom 2 spend money? No. Freedom 2 not be locked down for 30 years or in debt 2 dishonest corporations.


10. Search for meaning in life beyond the acquisition of money, power, material goods or status. Discover unconditional love. Be at peace.

The State of Working America.

I’m a designer — not an economist. However, it’s a beautiful thing when that which we as designers know to be true intuitively is proven as such thanks to data compiled by hardworking researchers.

The fact of the matter — as indicated by the data presented by the Economic Policy Institute in The State of Working America 2008/2009 is that — despite dramatic increases in productivity (Figure 3) — per capita income (specifically for the lower 95% who have to work for a living) has been facing a slow decline since the 1950s (Figure 1) while income for the top 5% has dramatically increased to the point at which the share of income held by the top 1% is dangerously at near 1920s [Great Depression] levels (Figure 4).

One need not be an economist to conclude that greed is not so good, and that only through the design and careful monitoring of an equitable system whereby all who contribute are able to fairly benefit can any economic system sustain long-term viability — with equal opportunity for all.

Released in time for Labor Day 2008, the advanced edition of EPI’s authoritative volume The State of Working America 2008/2009 is now available. Described as the “most comprehensive independent analysis of the U.S. labor market” by the Financial Times, the 11th edition shows that the business cycle that started in 2001 will be one for the record books. In fact, for the first time on record, middle-class families are at the end of a recovery without ever having regained the ground they lost during the previous recession. Gross domestic product and historically high productivity growth should have raised paychecks up and down the income ladder, but instead the benefits of that growth have bypassed most of the people who made it possible. Prepared biennially since 1988, The State of Working America scrutinizes family incomes, jobs, wages, unemployment, wealth, poverty, and health care coverage, describing the economy’s effect on our nation’s standard of living. Order your copy of the full 11th edition, and be sure to check out our special online previews.