Evolution in Economic Thinking

I’ve been grumpy with people who received their MBAs in the 1970s and 1980s for a very long time. Nice people but how long is it going to take before you realise that the short term profit focused approach just doesn’t work. At best it results in a race-to-the-bottom slow death. At worst businesses and economies become fragile to the point of not being able to withstand the changes in their circumstances which leads to catastrophic destruction.

To be fair though, a lot of what they’ve been trained in is based on what we’re finally discovering is pretty weak economic theory. Kahneman explores some of this in Thinking Fast and Slow when he compares “Econs” with “Humans”. The inadequate models based on ideal economic participants are poorly predictive and are likely at to root of why economists sometimes have a bad reputation.

Relief may be in sight though (i.e. we as a society may be getting a clue). There’s a wonderful writeup in the McKinsey Quarterly titled Redefining Capitalism that explores and adjusts our perceptions of capitalism and, among other things, the role that democracy plays as a regulator for capitalisms weaknesses. I’m still be skeptical about the efficacy of democracy (yes there are worse systems, but that doesn’t mean democracy is the best), but that can be saved for later. Read the article. It’s quite good.

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