It's Time for the World to Pick Door Number Three

In the middle of the last century the “House” of Economics was redesigned, moving from the simplistic cottage perspective that if workers would accept market wages there would be full employment to castle sized explanations as to why there were seemingly random periods of economic failure, boom and bust cycles.

The new ideas were provoked by advancements in fields of science, Mathematics and Physics, as Economists imagined having precise control over the economy, such as Physics had given men control over machinery and electricity.

Two theories were chosen by the powerful and taught to future leaders at prestigious institutions throughout the western world, they became the official entry or Doors, through which students entered the House of Economics.

The left side of the house had a Door to the Keynesians, who imagined an inherent right and obligation to correct the mistakes of businesses and to protect the citizen’s from the kind of hazards that an unregulated business produce in the relentless search for profits. Keynesian policies are designed to promote equality across society and minimise suffering in a downturn by using the printing presses and flooding the market with cash.

Keynes theory seemingly worked from the late 1940’s until the mid-1970s when inflation and stagflation wracked the economy, resulting in high levels of public discontent. It marked the end of faith in Keynesianism, and economists and politicians alike ran out of the Left Door and into the Right.

Inside the Right Door were the Monetarists, who hold a diametric view from the Keynesians. Government is the problem in their view of economics, making its role as small as possible is the central tenet, with a religious like faith in the “Invisible Hand” of the free markets guiding us through the economic problems.

They have no faith in Government and doubted its right to legislate and regulate the “free market” in any manner. Using easy comparisons to the socialist and communist economies that were crashing around the world in the 80’s and 90’s as their rationale Ronald Reagan’s administration drove the anti-government crusade, the leading torch carrier Federal Reserve Chairman Alan Greenspan.

Greenspan specialised in dazzling Journalists and Congressmen alike with his cryptic explanations of the economic wizardry contained within the rooms within the house of Monetarians, a dialog that emphasized the “science” of economics.

Greenspan reeked confidence while declaring with a straight face at press conferences, “I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said”. He was more magician than scientist and average citizens could never understand the details of a theory like Monetarism.

The three decade reign of Monetarism was a rocky ride and by 2008, after living through crashes like in 1987, the Savings & Loan debacle, The Hedge Fund, Long Term Capital Management meltdown, the Tech crash in 2000-01 and most recently when trillions of dollars were lost in the bankers betting on overstated home values, using the freedoms of deregulation.

By 2009 the situation was so bleak Greenspan had to go to Congress admitting that he didn’t understand the derivatives and MBS that he had claimed were the greatest financial invention of our times. By this time Billions of dollars that had been pensions and college endowments had been raided by Bankers freed by regulation, allowing them to earn Billions on efforts that provided no social value or jobs.

The Keynesians see a chance to rise again, but there may be a better option available to citizens of countries everywhere, another Door for us to enter.

The Third Door leads us to the theories of the economist E. F. Schumacher, an economist whose book; “Small is Beautiful, Economics as if People Mattered”, written in 1973 warned us about some very big problems inherent in both the Left and the Right doors of Economics.

Schumacher was especially concerned about the love of giantism prevalent in both theories, warning that counting on rampant consumerism would lead to unsustainable debt loads, that unregulated businesses would consume and pollute the world resources in their blind pursuit of more sales and higher profits.

His book is dated as all books that are specific in developing areas that are touched by technology, but the core idea of incorporating the social gains and losses into the macro economic models would be a major shift towards a more sustainable future.

Adding his concepts to the new work by economist such as Daniel Kahnemann could provide new answers and with a new symmetry of information possible with the Internet an equitable and accountable economic system can be developed and advanced based on facts instead of ideology.

Any intelligent fool can make things bigger, more complex, and more violent.

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