The Economics that brought us here

The joke has been told of the doctor, the engineer and the economist. While they argued on whose profession was the oldest, the doctor said; “on the sixth day, God removed a rib from the man and made the woman, that was surgery”. In his argument, the engineer submitted, “on the first day, God created the world from absolute chaos; that was a great engineering feat”. To prove that his was the oldest profession, the economist said, “and who do you think caused the chaos in the first place”.

The world is currently in financial chaos. Companies are declaring billions of dollars in losses, jobs are been cut, giant banks are liquidating, and even whole countries are declaring bankruptcy. Whoever caused this monumental chaos?

A professor of the socio-political environment of business, a foremost economist and a director at the Lagos Business School, Prof. Pat Utomi, had this to say about the current chaos we’ve found ourselves in, “the collapse of the US mortgage market was inevitable as it had been allowed to spiral out of control…” He notes that “the huge financial institutions had abandoned conventional finance for money creation through statistical calculations and projections packaged in complex securities found good ground in the mortgage market as they bought the loans, which they packaged for others to buy at a decent profit”.

He further noted that “all sorts of financial engineering was going on to create all sorts of sophisticated instruments to guarantee the risk and they were getting away with it until one day, as it always happens, one small crisis and…” you know the rest.

Hmmn! This sounds familiar; it sounds like the definition of economics I once stumbled upon while reading a book on English grammar a couple of years ago and it happens that this definition is that one I love the most; it says, “economics is common sense made complex. This is the economics that brought us here. The economics that make men abandon reason for boom theories; the economics that make us close our eyes to reality because the tables say we’re doing well; the economics that arrives at indices and policies by taking figures through complex formula and not by engaging those involved; the economics that advices people to buy only houses, cars etc they naturally can’t afford because speculative calculations and complex theoretical formula says it will soon make them overnight millionaires. This kind of economics will always create chaos and more chaos.

Now that the world is searching frantically for solutions, it is worthy to note the words of Albert Einstein that problems created by a level of thinking can only be solved by a higher level of thinking i.e. the same thinking that created this mess cannot take us out of it. So we need superior (not more complex) thinking to take us out of this so termed financial melt down. But this is one thing ‘complex economics’ cannot achieve for us because it has another detriment: it is superficially and peripherally based. It uses complex theoretical manipulations to arrive at pre-desired indicators and puts ideology before reality. This type of thinking lacks the ability to proffer long lasting or permanent solutions to problems because of its lack of depth and focuses only on short term superficial solutions. This makes it seem that these economists are hell bent on seeing that we go back to the chaos that was just before Gods great engineering feat with their not well thought out economic solutions to the present crisis.

Let’s take the Australian example. The government of that country in order to kick start the flagging economy amid the global financial crisis will be giving cash handouts to more than seven million people to go shopping as part of a $28billion economic stimulus package. I’m not against economic stimuli, we actually need it to make head way out of this chaos, but this is obviously not the way to go about it. You don’t just go giving money around for people to go spend. That way, you’d only create a culture of laziness, both mental and physical, in an era where we need people working and thinking hard.

If this is how other countries preaching the stimuli sermon intend to go about its implementation, then the world should prepare for a never ending financial crisis and God should also prepare to create a new world from the chaos that will soon emerge.

The world right now needs to urgently shift from taking advises from this category of economist and transit to solving problems by addressing the ‘root cause’. The global financial meltdown for instance is the result of the cumulative effect of wrong actions for many years so it cannot be solved overnight by quick fix actions of giving people huge handouts to spend for doing nothing. Instead, deliberate attempts should be made at strengthening the entrepreneurial base of national economies – this is what will ensure that people remain employed and guarantee sustained earning by individuals who will in turn stimulate demand. Corporate risk analysis strategies should be improved – the bandwagon effect investments that institutions made without proper risk analysis is what put many of them out of business today and the rest begging for bailouts. Attempts should also be made to tackle the greed that has eaten deep into the fabric of the corporate environment.

These are not magical solutions that will provide overnight remedies but if these and other root solutions can be diligently and consistently administered, in a few years, the global financial landscape would begin to experience visible and traceable growth.