Going Global

The Illusion of rational man, enter the economics of fear; by W.A Wijewardena, is a great read.

He offers a simple look into a basically intrinsic assumption in economic theory, that of the existence of the rational man. Rational man as we all practically know, is a figment of the collective imagination. Everything thinks they are rational, but our rationality is also based on our emotions. So we are bringing in our emotions in the consideration of choices and decisions.

But are emotions completely devoid of rationality? Aren't emotions signals from the gut so to speak?

The problem may lie with the basic definition of economic rationality. The Economic man or the Rationl man is generally described to be one who pursues self interest in his actions decisions and thoughts, therefore exercising that self interest and furthering his improvement is a product of his rational mind. As Adam Smith says in the Wealth of Nations

"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."

Mr. Wijewardena goes on to state that as fear is avoided by rational man due to the fact that it creates 'disutility' (the opposite of utility, which Rational Man is said to pursue) and due to the fact that it is a product of risk (or the fear of the unknown) it is irrational and 'does not tally with the concept of the rational man'.

His argument, if i am correct, is that fear is an irrational emotion and therefore should not fit in to the concept of the rational man.

But here, i feel that we are stuck in the orginal economic definition of 'rational man'. Where the original concept of rationality is one of reason. So does reasoning secificaly have to take place based only on known facts and figures? If man did that, ignoring his gut feeling and emotions, he would surely fall prey to the unknown. Calling gut instincts or emotions a part of 'rationality' or reasoning may seem absurd but in reality, that is exactly how reasoning takes place.

Man is a rational creature, meaning that man engages in reasoning. But trying to label that reasoning within narrow categories that cannot include emotions or any of the other tools that economists feel are not 'rational' as they see it will only lead to problems later on.

As for Mr. Wijewardena's argument that fear is irrational, it is irrational in the context of the 'old' rational man. The man meant to purely base his decisions on 'fact and reason'.

But fear does have its benefits. Fear is a signal and will only improve your ability to respond to events more accurately. But fear can also be irrational, when you are obviously more content to blindly fear things and adopt remedies to counter these fears without stopping to examine if these fears have any credibility. Like fearing antagonism in the job market just cos your skin is a darker shade.

This is a scary prospect and as MR Wijewardena says, has been present in society for a long time and is especially present in the 'era of fear' that we are living in.

heres a quick fix to the financial crisis.

The whole thing happened cos the housing market failed right? So people defaulted on their loans and cleared outta their homes. Leaving banks stuck with useless debt and unsellable houses. So what do they do? They sell the houses to the Indians! and the Chinese and the Sri Lankans! im sure we'll (speaking for all Asians) be glad enough to lap up good houses going cheap in the most developed nation of the world.

But then they'd have to grant us VISAs. Otherwise whats the point? no ones gonna buy a house they cant live in. So they give us VISAs and a million or so more immigrants enter the US. In case ur thinking people over here cant afford to buy US homes, thats not true. Theres a lot of money around these parts. The Indian ocean is gleaming with it.

So the Zombie banks sell their houses cheap and recover most of their money. The people who went to the US are happy cos they are now in 'the land of the free'. The US doesn't mind a coupla million more immigrants as long as they work hard and pay their medical insurance. The defaulters can rent rooms in the houses being bought. OR the owners can stay in Asia and rent their new homes out to homeless Americans.

The crisis will be nullified due to all the toxic assets being taken care of (because every house will be sold to clamouring Indians and Chinese - and the odd Lankan politician - with bulging pockets), banks will be standing on their own two feet again, and soon theother banks wont be so suspicious anymore of lendng out money, and the velocity of money going around the economy will slowly increase and permeat the air with some green crispness.

Trade will pick up as credit eases and confidence increases. Recruitment will start and people will find work again. And we shall all start living life as normal. The rich will once again become richer at a steady pace. no more uncertainty for them. And the poor will once again be poor in confidence. No more uncerainty for them either.

There. problem solved.
Stay tuned for; Conspiracies of the Crunch - predicting possible future credit crunch conspiracy theories (cue ominous music).

So what has Obama done so far? Where is this 'change' that has been going around apparently for the whole world to see? Only change I see is a darker tone of skin in the white house.

People are still dying in Iraq, casualties have only increased lately including those of US soldiers. Violence has exacerbated in Pakistan, the Taliban has expanded its control. The Gaza Strip and the West Bank are no better. Sure, you may say that the 100;1 ratio of Palestinian to Israeli deaths officially still happened during Bush's last days but Obama was still president elect, and in the name of humanity, he could have said something or raised a protest. Reasonably supposing that he really knew what was going on.

The UN security council was going to pass a motion, simply a statement condemning the Israeli attacks, but even a mere statement against the war crimes being committed by Israel was vetoed by the United States. This was the same United States whose public was caught up in the wave of 'change' and 'Rebranding America' etc. Obama didn’t even raise a finger in protest. Hiding behind his 'presidential elect' status to absolve himself of any responsibility.

His flumbering beginnings in handling the 'Financial Crisis' have proven inadequate to say the least. The much harped about G20 produced nothing less than 'heroic hypocrisy, unreliable sums, weak promises, meaningless language and self-serving commitments other than a very few worthwhile achievements' (read more of Miles Saltiel's report). His 'stimulus' packages have drawn widespread criticism from many economists (big names like Krugman and Stiglitz) as being extremely inappropriate given the current banking system.

It is increasingly looking like the boom-bust cycle will need to run its course until markets make their own recovery and Keynesian style hole digging and re-filling stimulus plans may or may not get us there quicker, but they will not work in the US is pumping its money into largely inefficient and loss making banks.

Also, where is the inquest into what happened in the Bush years? Where is all the war crime and 9/11 conspiracies that need to be investigated? The advent of Obama and his main calling card 'change' served the most effective purposes of brainwashing the world community into forgetting all about the previous years of US rule. It had the effect of making them think that 'hey, here's a new guy, let’s just forget the old guy, let’s change and move on'. But that change itself was insubstantial and mostly made up of clever and emotionally appealing rhetoric. And those of us who expected some actual substance from the man after he gained office will soon be sorely disappointed.

1) a non-political central bank (i.e. the Fed Reserve) could assuring a smoothly growing money supply and






But the deregulation of the banks aside, Friedman's idea of a non-political and independent Central Bank hasn't really helped proceedings. And just like the Great Depression, the Fed could be again posthumously accused of worsening the effect of this crisis which we are facing right now through its inability to ease up on monetary policy when the housing bubble was on its way to bursting.

Also, the Fed Reserve, effectively being the controller of the largest economy of the world, being essentiall a non political organization and therefore liable to more bias and adverse interests, is a bloody scary prospect.