Of all people in our world, few care about or want to understand economics. Neither did I, not ever during my first thirty-year tenure in global business, as an entrepreneur, CEO, venture capital investor, and board member.
Until I noticed how venture capital, as our most modern investment asset class, for decennia remains wrapped in a warm towel of patriotic false positivity, and is allowed to deploy economics systemically incompatible with the needs of innovation.
The bad reputation of Economics
Many have understandably lost faith in economics, as some two-hundred years of deployment of classical economics refined by British economist John Maynard Keynes and followed by a plethora of ingenious derivatives (including neo-classical) upon which most current economic religion is based, have not shielded us from severe economic malaise, nor promoted sustainable societal prosperity instead. Our societies (and many participants like me) have succeeded despite, not because of a play-book of classical economics.
Economics is further ignored and despised by business because they appear to distract from the ability to pursue short-term personal gain, given they often demand consideration of broader long-term benefits to the greater public. And when economic barometers begin to indicate an increase in pressure, a business wants nothing more than being left to its own devices, unconstrained in its ability to face the headwinds and adjust accordingly.
Simply put, the faith and reputation of economics are shot.
So much so, that I witnessed some economists go into hiding, retire or change their title on their resumes, to avoid the scrutiny of their allegiance to the economics that has so poignantly failed us.
The Economist, as the preeminent publication of economic strategies and innovation, phrased the reputation of economics on July 16th of 2009 as follows:
OF ALL the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself. Economists need to reach out from their specialized silos: macroeconomists must understand finance, and finance professors need to think harder about the context within which markets work. For in the end economists are social scientists, trying to understand the real world.
Back to basics
Any environment in which the needs and desires of a group of people are met or exchanged requires the deployment of control to maximize the long-lasting positive outcome of that environment. A model that is bestowed upon its participants, some acting as enforcers, and used to continually and systematically weed out the undesired behavior as to protect the purpose, integrity, and life-cycle of the environment.
None understood that better than the ancient Greeks, who defined the original meaning of economics: “oikonomia” literally as the rules of the house(hold).
As the inspiration of the foundation of western society, the ancient Greeks understood early that to run an efficient household one needs rules. And to keep the household functioning properly, every participant required to operate within those boundaries.
Boundaries are crucial to protect the sanity of a household and define what is deemed acceptable behavior to the group and what is not. Boundaries that protect a member of the family from infringing on the rights, freedoms, and protections enjoyed by another. Limits to ensure a level playing field for all participants, so merit, not manipulation becomes the prominent factor of success.
The level of understanding of establishes the sanity, integrity, and reputation of the household, and compliance with the roles and boundaries applied to its members. Once those rules are dutifully instilled and understood, the members of the family then operate on their own, with limited direct but initially still omnipresent indirect oversight. So much so, that when new or visiting members partake in the household, another resident member will temporarily take over the reinforcement of the rules, with all the participants acting as potential whistleblowers, in order to safeguard the freedoms they have become accustomed to and ensure the new participants operate within and comply to the same rulebook.
From a well-functioning household comes a group of people, each with their unique assets, abilities, and aspirations, who are someday ready to form their household, inspired and controlled by their own rules (subject to societal constraints).
Economics, as the ancient Greeks defined for us, form the establishment of the guard rails of the behavior of each within a group setting, not a set of predictions and regulations that establish a shoehorn from the product of their interaction.
Little relevance to math
Now, contrast the definition of economics by the ancient Greeks with today’s prevailing implementation of economics.
And ask yourself the following questions. Do you manage your household today using esoteric definitions such as “supply-and-demand,” “markets,” and “consumption” doused in complex mathematical formulas (meant to mimic reality)? Do you measure the evolution of your household solely by how much money one of its participants makes?
My guess is you do not. Nor should you. So, why do we apply such flawed proxies to the even bigger households we need to manage; that of our cities, states, countries, and our world? Why is money (often with highly questionable merit attached) the sole metric of our most important objective; to secure a renewable evolution of mankind?
Right there, at the top and starting point of the definition and purpose of economics begins the most important (but not only) differentiation between the prevailing economics of today and the renewable economics I describe in my upcoming book.
It is time to apply some upstream innovation to the meaning, theory, and implementation of economics itself, so then for the first time it can become the trustworthy guide to our renewable future we should all care so much about.