It's about the human, stupid.
When I was 19, I felt one of the most important things in the human universe is the question where the wealth of nations and individuals originates from. Why some nations are poor, and other peoples are rich. And even more important: why all of us are so much better of than a few centuries ago, and how we can maintain and accelerate human progress.
So I studied economics. And guess what. I learned – nothing.
I don’t want to go to deep into it. I am not the first one who criticizes the current approach to economic science. It’s dull, math-driven, boring, and, before all, scientifically wrong. If economics was a knowledge factory, and we, the people, were its investors, its CEO would end up in jail for intellectual pyramid theme-fraud.
The core of the problem becomes visible at a student’s very first encounter with economics: when the scientific believe system of economic science is first presented to the young curious mind.
It reads like this: (stupid stuff).
This consensus among most economists is nothing less than some of the bluntest violations of the principles of post-medieval science you can find in today’s academic arena. And that says a lot.
Remember the scientific principles? They are pretty straightforward and easy to understand.
- Drop all assumptions and beliefs.
- Make the primary facts from empiric observation your central reference point.
- Apply creative logical thinking to build theoretic models that explain these facts effectively.
- Apply your theory and test its effectiveness. Re-engineer until facts, theory and effects build a non-contradictive, logical entity.
Optional: Package and ship product (your theory) to market for real world application. Replace theory 1.0 with more effective theory 2.0.
Now, check this fundamental scientific process against the ”scientific” approach of contemporary economics: #1: badly violated – economics puts the assumption “humans are rational utility optimizers” before all facts and empirics. #2: badly violated – economics puts mathematics before empirics. #3: not existent – economics focus on creating absurd mathematical models rather than scientific theories based on facts and qualitative logic. #4: applying economic theory reveals its total inability to predict anything, and creates $8 trillion dollars disasters. Test completely failed.
Basically, the assessment leaves us with an indisputable result: economics is a complete failure as a science. It lacks scientific attitude, methodology, and – most important – effectiveness. I am not the first one to realize that. Forward-thinking economists have developed behavioral economics, a more psychology-based approach. But it’s still stuck in too many places of the old economic world.
We need results. And after over a decade of contemplation over this problem I am convinced that a methodological debate – while dearly needed – wouldn’t bring the change we need. It is not the method that paves the way for a re-alignment of economics, but something more primal: the re-definition of the problems we want to solve. Contemporary economics keeps its disaster below the radar by simply asking the wrong questions before giving the wrong answers. Are markets efficient? How can we formulate rational human behavior? How can we mathematically engineer utility? These are not economic questions. The reason a society funds economics is very simple and straightforward: we want to know how everyone becomes more prosperous. Economics gets funded because its task is to figure out the principles of value creation, and allow us to systematically increase it.
I am convinced that the most effective way to re-start economics is identify to define the three, simple lead problems of economics. Put them up in every economics department, and below them a reminder: “Only no-nonsense answers allowed”.
Problem #1: What is value?
The reason why a society invests in economic research is because it wants to figure out how to increase its wealth. The concept of wealth points directly towards the concept of value. Since the valuation of stuff takes place in our minds, the core of economics lies in the understanding of the human mind and its valuation logics. Before it can even start to exist, an economic science has to provide for a clear, solid theoretic model of human value perception as the key driver for demand, pricing and the definition of prosperity.
Problem #2: Why and how do humans produce value?
Once we know what value is, the next question refers to its production. Why and how do humans create value for each other? Again, the core of this question points back into the human mind, but this time into its motivational systems. The second economic paradigm covers incentive systems such as liberty, free markets, the meaning of money in a society, creative capacities and the principles of innovation and entrepreneurship.
Problem #3: How can we increase value production in a society?
The third economic paradigm finally deals with the question what measures and infrastructures have in impact on economic productivity. This includes legislation, regulation, monetary policy, culture, communication and everything else that influences economic behavior of humans. And again, at the center of this paradigm stands the human mind and its thoughts and actions relevant to the creation of value.
This new approach to economics would re-align the focus from half-hearted math tutorials towards a no-nonsense, human-centric analysis of the wealth of nations. It’s human-centric economics.
Human-centric economics would provide a value to our society that is hard to overestimate.
Imagine a science that systematically deciphers the laws and principles of human value creation, and engineers the governing technologies and insights that systematically increase prosperity.
Actually, I am convinced that it represents the single most important science of all.