Tuesday, September 30, 2014

Screw Theory, Focus on Reality: Economics

I've been having a heated debate with my friend that started out with the HK protests that even involved the #ReturnOurCPF nonsense that is happening in Singapore.

My friend is arguing that people should be more aware about world and do something about it, rather than be selfish leeches of a prosperous society.

I am arguing that it's just human nature to not give a crap about anything else until you have your own problems sorted out, so it's not their conscious choice to sit on the sidelines and watch the world burn.

In the end, I realized that what we are arguing about was simple: Idealized Theory vs. Realistic Reality.

Of course it would be great if there was no war, poverty, disease, hate, pain or suffering. And if we were all rich. And everyone was equal. And no one is jealous. But hell, come on, is that seriously realistic at all, in any way?

One speech that I saw that helped mould my mind about the absurdness of theoretical idealized theories was a speech by a man in the British House of Commons, I think. He was arguing about working and improving the capitalist model, while arguing against the shift towards socialism. His main point? We've tried socialism before, many times, in many places. It always fails. It might not have failed yet, but it will fail. It isn't a stable structure. Capitalism however, as imperfect as it is, has been grinding along and dragging progress with it. It's not without flaws, but it is the closest thing that we have to a stable structure that moves in the correct direction.

Why fix it, when it's not broken? Instead, improve it and make it better, rather than trash it and try out something that we've experimented with many times before, and failed every single time.

Now, moving away from morality and politics, how does this relate to personal finance? I think we need to look at economics. What is your school of thought regarding economics? I was taught Keynesian economics in all my years in school, but I never found it logical to me. Instead, I had to memorize outcomes because it was never intuitive. Only about a year back when I stumbled upon the Austrian school of economics, that I really felt truly enlightened about economics. Everything makes sense, really. Give it a go, you might actually like it.

So, let me just show 4 things about Keynesian economics which just blows my mind because I seriously can't understand it at all. Maybe if you think about it too, you will question your economic school of thought.

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