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Eureka: The dangers of quantitative economics Eureka: The dangers of quantitative economics
by Akli Hadid
2017-11-09 11:04:46
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Fans of quantitative economics like to tell me “nobody can eat their happiness!” But there are some dangers of looking at the numbers without looking at the general quality of work, production lines of life of people. Let me explain.

econ1_400There has been a trend since the Google era to try to find creative ways to catch up with the GDP of world number one the United States of America. So what you had is a lot of countries who thought, if we go crazy and spend like crazy, our numbers will go up and we'll catch up with the United States.

In the old days in track and field they used to have something called “the 2 hour race.” In the 2 hour race, the idea was to run non-stop for two hours and the person with the most miles under his shoes won the race. Now imagine that at the one hour mark you have a clear leader, and that you had runners who tried to sprint to just so at the one hour and ten minute mark they could come close to the leader in terms of miles run. The problem is, what are they going to do for the next fifty minutes?

Over the last years, ranking-obsessed countries decided to get rid of savings by forcing consumption and investment, as those two would bump them up in the rankings. Debt-led investment and consumption that is. Borrow to buy expensive cars! Borrow to buy expensive education! Borrow to buy expensive houses! Get more credit card debt! Our GDP will soar to the roof! We are getting close to the number one spot!

What happens when that happens? People do borrow, to quote the great Dave Ramsay, to buy things they don't need with money they don't have to impress people they don't really like. But then, they can't get rid of the debt. So they have to work three jobs to repay the debt and their only expense other than rent and electricity will be beans and rice. So like in the 2 hour race, you get closer to the leader for about 10 minutes, but then you have to finish the race walking for the next fifty minutes because you're too tired to run.

What is responsible economic planning? It's one that does away with the rankings. The economy is not a race to the top. Survival is the priority, along with security and feelings of belonging. So you need to make sure people are well-fed, safe and belong to the community. Good debt is for people with good ideas who have the means to repay the debt. Pushing people to go into debt just so you can bump up the GDP score is like a tennis player deliberately forcing match points so that he can make it to the highlights of the sports news if he wins, because he will have saved match points. It's dangerous, but it's the same mentality.

What happens when that happens? Kind of like a one-night stand when you knock her up. 6 minutes of elation, 19 years during which you will not have a life, you will get little sleep, you will work and not see the light of the day, the highlight of your day will be reading the newspaper headlines and that “mistake” will have cost you 19 years of your life. Debt-led growth is the same thing. 5 minutes of elation when you get the keys to your business, and years on end trying to repay the debt.

A statistic recently showed that over one in two people had been hazed by their boss. The number was up from one in four twenty years ago. Debt is responsibility. Debt makes you cranky. If you're the kind of person who likes to cut corners, debt leads to gambling. Debt will make the kindest person the most obnoxious person. Debt leads to frustration.

So what's the remedy against debt-led growth? Make sure people who borrow have a clear plan to repay their debt. When you knock your wife up, it's always good to have a spare room for the baby and everything checked so you can provide a good life for the baby. It's the same thing with debt. All this debt just to buy things you don't need with money you don't have to impress countries you don't really like with your GDP rankings.


      
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