Economy as a branch of Moral Philosophy
The author writes: "Economy is not a science, and cannot be approached as
such. At the basis of every economic system is a specific view of how humans
should live together."
Wonderful, the key word here is should. That is why I call economists
'secular theologians'. This is why economics does not even conform to Thomas
Kuhn's definition of a science and its practitioners do not even agree on a
basic paradigm. The theories about economics are means not ends, and the
economic actions they seek to understand also are means and not ends. Economics
serves political and psychological ends and the economists seek to create
theories that will justify the policies political leaders (or want to be
leaders) claim will create a society in which humans will actually live
together as they should.
Stable economic systems
Mr. Kampa proposes that the 'most important unanswered question of modern
economic theory is how can we create a stable and sustainable economic system
without stifling innovation?" He rightly notes that human history is one
of repeated 'booms and busts'. The economic systems are 'unstable'. He believes
that modern technology can solve this problem and that new crypto-finance may
I agree with his description of human history and admire his effort and
optimism. He rightly understands the basic opposition between stability-
sustainability and innovation. Actually in the ancient past, for instance,
Egyptian and Mesopotamian despotisms did achieve considerable stability and
sustainability but exactly at the cost of stasis and abhorrence of innovation.
Throughout classical and medieval time stability continued to block innovation.
The whole essence of the revolution in human standards of living has been
achieved by the massive explosion of innovation at the expense of stability.
Robust financial market models
Mr. Kampa refers to the theories of Benoi Mandelbrot - chaos theory - which
(among other things) found that the models of economic behavior do not 'adhere'
to the conditions in the real world. Suddenly a whole new category of economic
theory poped up called 'behavioral economics." He writes so cogently:
"Today, half a century later, almost all economic models taught at
universities are still based on the normal distribution, as are the risk models
underlying the Basel computations". (He is referring to the International
bank in Basel) that tries to establish parameters for evaluating risk that
banks must use. He advocates development of better models.
Again, I applaud his optomism and proactive efforts. Call me a contrarian,
skeptical, cynic, but I have my doubts if human behavior can ever be modeled.
Perhaps, worse, I strongly doubt that political leaders and want-to-be leaders,
and intelligentsia purveyors of theories who seek to influence these actors
will ever agree about what would constitute a system in which humans
should, let alone could live together.