In this time and age, there are hundreds, even thousands of forms of knowledge in the shape of facts, analysis, mathematical equations and statistics. In spite of all that, the economy continues to reel from one crisis to another, and individuals continue to suffer from it.
Does this mean that the numbers we rely on are unreliable or that the lessons we have learned from our predecessors not worth our time? Far from it. In fact I believe that the reason for the failure is because we keep forgetting that the formulas and methodologies we use are based on historical events and observations. And so many of us are using those same methodologies to plan our participation in the market that it may actually start to affect the performance of the market itself. In other words, though we have learned to adapt, the tools we use have not been adapted to our current state.
Some formulas are quite straightforward and may remain useful for a long time because they are based on data collected from past events or existing conditions. Among them are the statistical averages and standard deviations which are data snapshots of human choices or conditions. That means that you can use the data in two ways.
On the other hand, there are also formulas for projecting or forecasting into the future. This is based on a combination of knowns and unknowns, such as the expected growth rate of the population, changing trends in income distribution, varying political climate, or future availability of resources. Many of these projections rely on the predictability of future movements which in turn are based on past experiences. Forecasting has been so successful that it has become standard practice for companies to set a growth target based on projections, and its acceptance so widespread that no investor worth his salt is going to join a venture unless he likes what he sees in the business plan.
Undoubtedly the market competition that issued has created growth and increased the wealth of participants significantly over the years. Most of us are now eating, learning, and living better than our grandparents, and at the same time we are also given more means to destroy ourselves because of our sense of security. My job will always be there, I will get a pay raise, there is a big bonus coming up so I might as well get a personal loan now, which is right and proper, if we spend our future prudently.
Yet like all good things that man has invented, someone somewhere will find a way to abuse it. To some extend credit has had some good side-effects on the economy. For one thing, people are buying things now, instead of in the future. This has increased demand, and though it increased prices in the earlier stages, when the market becomes saturated the prices came down because of competition. The system is sustainable for as long as people continue to have jobs so they will continue to spend. That is because credit is based on the user’s willingness to pay his present with his future. However, as the last few years have proven, jobs will not always be there and many of us suddenly find that we have squandered away our present on shoes, bags and other irrelevant things in the past. Firms were also so confident with their forecasting models or so desperate to meet their targets that they took risks which an earlier generation would never have taken, such as giving standard loans to a high risk client.
Was our reasoning unsound? How is it possible that a collection of people who has the mental capacity to understand the concept of change not realize that change can also mean a turn for the worse?
So the next question is: Are we really as rational and as reasonable as we believe ourselves to be? Or are we just individuals who have learned to rationalize our way into any economic or social trend bandwagon that we are told we must never miss. Our evolutionary need to better our competition has already depleted the environment, and may even now be affecting the climate in some parts of the world. If we change our values and our market system, will we, as a species pursue this new trend with as much vehemence as the ones we do now? And if we do, how will our society or the environment be affected? After all, we are obsessed with competition. Just look at the headlines: Richest Entrepreneur, Sexiest Woman, Most Successful Business Model, Fastest Runner, Strongest Athlete, Bestselling Book and the list goes on.
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