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The emerging resistance to accepting the new economics! Wow, it’s great!

May 26, 2014

The problem:

Having presented my studies on the new economics of Kahneman, Thaler, Sunstein and a few other daring economists and psychologists at three universities, I am coming to the interim conclusion that the competition for dominance in the market place in the 21st century will be between those who think that  fixing an ailing economy is best done with traditional austerity measures and those who believe that the best way to heal an economy is by starting a stimulus program. The Competing economic systems are Classical Economics (CE) for austerity measures and Behavioral Economics (BE) for Stimulus Program.

The historical unfolding:
Newton’s Classical Physics (CP) kept man out of the equation (1670). Einstein’s Behavioral Physics (BP) replaces Newton’s CP and brought man back in. Smith’s Classical Economics (CE) kept man out of the equation (1776). Kahneman’s behavioral Economics (BE) brought man back in (2002). Roosevelt, Thaler, Sunstein and Kahneman’s thinking replace Hoover, Adam Smith (1776), Carl Marx (1846), John Keynes (1930) and the vacillating Milton Friedman from the Chcago school. Man appears in to stay!

The politics:
Behavioral economists Drs. Thaler and Sunstein write “Nudge,” the first
milestone text describing the economic values of the new discipline
The UK and US governments are sold on behavioral economics stimuli (EU holds on to Austerity), jump on the new economic bandwagon: Man is very much in. David Cameron conservative government opened a “Nudge” unit in 2010: a behavioral economics department (BED) and appoints
Dr. Thaler to lead the behavioral insight team (BIT). President Barack Obama opened a “Nudge” unit in the WH, an office of economic information and regulation (OIRA) in the
department of management and budget, and appoint Dr. Sunstein to
Head it. The Harper government is considering a behavioral economics supervisory system similar to the US with an emphasis on the environment. Europe is resisting the new thinking. The Spanish government accepts the German austerity measures. No behavioral economics zeitgeist to bring the European Union.

The big difference:
Two opposing visions for economic recovery : Europe versus America, old world versus new world:
x. Old: Austerity measures, the German plan, reduce spending, increase bailouts, increase taxes, exempt Universities, religious institutions, charities, allow multiple austerities to depress trade, fix currency values to further depress trade, keep the prime rate high to avoid stimulus measures but tolerate “black market.” in sum, austerity measures are usually more painful to the individual and the economy than the politicians believe.
x. New: Stimulus package, the American plan, shift to cost-benefit value planning, mprove productivity, reduce unemployment, increase value spending, limit bailouts to viable companies, exempt Universities, religious institutions and charities only to the extent that they add to GDP and stimulate trade.. In sum, stimulus packages are more beneficial to the individual and the economy than politicians believe (see loss aversion).


My plan for Spain (To be continued in Segment 2)


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