How economics has changed

Some of us are going to have to throw out our old finance textbooks. Economic thinking has always evolved—shaped by upbringing, ideology, education, and the political mood of the moment—but this time the shift is far more profound.

Back in 2017, at an Australian Institute of Company Directors event, I heard an economist argue that our textbooks were already outdated. That was before the pandemic, before geopolitical realignments accelerated, and before the rapid rise of artificial intelligence. Since then, the world has changed in ways that are impossible to ignore.

Each event on its own is significant; together, they have reshaped the global economic landscape:

·       Covid 19 collided with the shift from globalization to isolationist / mercantilism has changed the world forever, meaning we could never go back to how things were. 

·       The election of a U.S. President who embraced disruption and postmodern media dynamics occurred just as AI began transforming communication and information.

·       Brexit gave all of Europe the opportunity to rethink its relationship with other countries.

·       National debts ballooned which enabled all countries to justify increased costs and harsher conditions which has led to changes in ethics.

·       Checks and balances eroded, which has also collided with changing virtues as well as a devaluing in human worth.

·       The rise of oligarchs in many countries with increased power, colliding with the reduction in ethical protections (often under the guise of cutting red tape), creating fertile ground for corruptions such as insider trading to flourish.

·       The rise of cryptocurrency has reduced transparency in transactions. Money no longer has to be handed over in brown paper bags to be untraceable, as blockchains can hide the origin and recipients’ details sufficiently.

The list is dismal and it is easy to become discouraged, but it need not be. As new generations enter positions of influence, it is time for the best and brightest to write new textbooks. 

Mathematics may be constant, but economics is not. Much of modern capitalism is based on Milton Freidman’s philosophy which is in turn based on utilitarian ethics. The greater good (which sounds noble) that easily leads into the end justifies the means. 

Postmodernism has been around for a while and is hard to define, due to the inherent nature of any ‘post’ period. It is not a specific definable period in its own right, but a conflation or ‘flip flop’ of a previous period, i.e. Modernism. Since the first signs of postmodernism is in 1950-60’s, which was first embraced in Europe and then made it to other western countries such as U.S.A and Australia, we have oscillated between various iterations of neo-modernism and post modernism.

In true Postmodernist times, Truth has been redefined. Artificial Intelligence makes it even harder to identify truth which had already been reduced to what could be proved in a court of law. 

While the erosion of truth is problematic, the reason for the rise in postmodernism is because many rightly questioned who has the right to determine ‘truth’. It was rightly acknowledged that for too long only certain people had the right to say whatever they wanted and claimed it as truth without it being contested, so not all postmodernism is bad, but it is complicated and the removal of all absolutes is not helpful.

We need to understand the times we are in and develop appropriate strategies. Business needs risk and risk always needs to be informed. It is why we need to review our strategic documents. There are times when they hardly need change, but other times that is not the case. (See article  https://www.linkedin.com/pulse/swots-pestels-risk-management-leeanne-zamagias/?trackingId=Zey%2BffE8Tu%2B%2FCgwwh%2BONOA%3D%3D  An added complication is that we all operate from a set of assumptions, but don’t always acknowledge or understand how these assumptions are shaped by our values See my article https://www.linkedin.com/pulse/values-principles-ethics-leeanne-zamagias-xpecc/?trackingId=FjESBSsMRQ6p9yTi7BALrw%3D%3D 

In the 1990s, when I worked in banking, our mission statement began with a single priority: increase shareholder wealth, which was in keeping with Friedman’s philosophy. Australia has had the benefit of deep analysis of this part of our history through The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, where we have seen the consequences of the pursuit of profits at all costs.

In addition to the Interim and Final Reports, there have been some great books written on this Royal Commission.[1] I recall speaking at an Australian Institute of Company Directors (AICD) event in Darwin on the topic with the chair of People’s Choice Credit Union and the CEO of AICD at that time as the outcomes of that Royal Commission influenced so many industries. The simplicity of the six ethical principles that came out of the Royal Commission were quite telling:

• Obey the law

• Do not mislead or deceive

• Act fairly

• Provide services that are fit for purpose

• Deliver services with reasonable care and skill

• When acting for another, act in the best interest of that other.

The Friedman philosophy that the social responsibility of business is to solely increase profits has been challenged for quite a few decades now. While it is unfortunate that there are still too many in the world who harken back to the ‘whatever it takes’ view to be one of the ones who dies with the most toys, millennials have not embraced Greed is good in the same way as previous generations. 

With the demographic changes that have occurred, some of the lessons of the past not always being learnt and some not quite ready to accept the changes, we need new textbooks that outline the more recent events in economics.

We need to document and learn from these events rather than repeating them. While it is only speculation at this stage. The debt‑driven collapse of Fannie Mae and Freddie Mac that triggered the Global Financial Crisis may well find its modern parallel in tariff‑driven debt structures. Combined with weakened oversight, the risks are significant. We don’t know where this will lead when coupled with the removal of checks and balances and other events that are occurring at such a rapid rate simultaneously.

Global power has also shifted. Airlines in India recently placed an order for 1000 Boeing aircraft and China remains the largest tourism market in the world. Economic dominance is no longer concentrated where it once was.

Words have been redefined where meanings can now mean the opposite, which means we don’t always mean the same thing in our debates. One of the characteristics of postmodernism is that what is said is not always what is heard, as we all process information through our own filters.  This is even more so when it comes to politics and economics, which makes it even more difficult to have rational debates. For example, trade deficits are not inherently bad, but how they work in a globalised world is not the same as how they work in a mercantile system. We also see ideological contradictions: advocates of small government seeking greater control, or self‑proclaimed fiscal conservatives presiding over record debt increases. These narratives are still unfolding daily.

But in keeping with true postmodernism we are told not to look at the facts but rather trust the prejudices, the artificial intelligence built narratives and the media sound bites.

We need to rewrite our economic textbooks. Fortunately, there are good young minds who are attending to this.

[1] Recommended Books are Banking Bad by Adele Ferguson, A Wunch of Bankers by Daniel Ziffer and It’s your money by Alan Koehler, as well as the reports at  https://www.royalcommission.gov.au/banking