Thursday, October 30, 2008

Dynamite Economy 4.2 Free from Deadly Thinking

Oct 28, 2008
Solvere Lim
Cognose.blogspot.com
CtS Cognoscere tenus Solvere @
www.cts-ideas.com
察觉于发生之前 Cognize before Happening
解决于根基之处 Solving beyond Root Cause

But why it goes wrong for such a long time, escalated to such scale, what to do, how to do it, no one else seems to have an answer, logical answer, less so effective, all encompassing solutions.

There is no one, other than from this source, has the capacity to talk about how to bring growth back to the world economy!

Basically, with the coming of computers, lead economists, such as Paul Samuelson, Black, Sholes, Merton, have been pursuing some exoteric – Brownian Motions, Ants Walk, Random walk.

They have impressed the practitioners with unwieldy formula. [1]
Politicians, leaders, even professional bankers were then led into wilderness.

Earlier, inventors of these exoteric – Physicists, have realized these are feeble studies - after years of lost in wilderness.
Physicists went back to basics - to predict motion, you must understand how the system behaves then apply the right forces.
What guided scientists is the immense order of nature, so focus is on how nature behave.
What they contributed is they discover orders amidst countless uncertainties, so profitable inventions, billionaires, jobs plentiful.
Have you heard of any respected Physicists talking about Ant Walks?

The bankers, the legislators, the capitalists must learn from Scientists, such as this interesting dialog between Prof Yang Da Li (when he was Director of East Asia Institute, Singapore) with Chinese Premier Wen (Engineer - geology), 2008.

Yang : “With the escalating prices of property, do you release more land for construction?”
“You are the specialist, I am the government of a nation. My focus, my responsibility is to ensure that poor men have accommodations.” Wen said calmly.

Now, with the real estate bubbles burst globally, Premier Wen’s wisdom of looking at fundamental needs of a society, a harmonious society contrasting favorable over hard labor, feeble labor of academicians, even Nobel Economic Prize winners.

This is a precious experience every leader, would be leader must seriously ponder!

If you focus on facts, on indices, then not only you are late into happening, you may not have identified the causes, the complexity and priority, what are appropriate solutions, what are the ultimate objectives of policy.
This is the critical failure in today’s thinking.[2],[3]

Without firm ideas of the objectives of policies, you will be hopping around very hard, empty everyone’s coffers, laboring till exhaustions yet without solving a dime of the problem.
This is the reason why there is no solutions surface for this crisis.
The outcome of not solving The Great Depression was World War II!!

The notion of a new economic order, regulated banking industries is feeble.
It is like telling people we need to change, rushing to reform, but what for, how much, to whom, where to begin, when to stop, and WHY?

The following wisdom therefore is timely, absolutely needed.
The following will set free not just governments, bankers from the shackles of unwieldy formulas.[4]
It opens new path for economists to do real, constructive, profitable research for long time to come.
It brings bankers compete on their core skills of value judgments, operation efficiency, and bring professionalism, pride back, then respect they have self-destructed will come back to them.

But most important of all - this will bring to all leader new understandings, supported by logically consistent explanations of what are the fundamentals of public policies, what are the essentials ingredients for growth!!

[1] Robert C. Merton was the first to publish a paper expanding the mathematical understanding of the options pricing model and coined the term "Black-Scholes" options pricing model, by enhancing work that was published by Fischer Black and Myron Scholes. The paper was first published in 1973. The foundation for their research relied on work developed by scholars such as Louis Bachelier, A. James Boness, Sheen T. Kassouf, Edward O. Thorp, and Paul Samuelson. The fundamental insight of Black-Scholes is that the option is implicitly priced if the stock is traded.
Merton and Scholes received the 1997
Nobel Prize in Economics for this and related work. Though ineligible for the prize because of his death in 1995, Black was mentioned as a contributor by the Swedish academy. (http://en.wikipedia.org/wiki/Black-Scholes)
[2] “Fallacy of Modern Thinking”, Jan 2003, collected in “Cognose – Recover the Lost Key to Infinite Wisdom” ISBN 9810 5137
[3] “Real Economy, Realities of Economy, Economic Realities” Jun 2001, collected in “Cognose – Recover the Lost Key to Infinite Wisdom” ISBN 9810 5137
[4] “The Blow Up” by Bryant Urstadt, Technology Review, Nov-Dec, 2007, is an interesting article to read how these financial engineers, on Aug 8, 2007, were questioning themselves after the darkest summer in decades, in The World Financial Center, Merrill Lynch, New York.

1 comment:

Anonymous said...

Thorp actually discovered and started profiting from the Black-Scholes model years before they did...he should have co-won the Nobel Prize for it.