Let's not fan the flames
In 1929 – the year of the crash on Wall Street – aircraft accidents killed 61 people, i.e., one death for every 1.6 million kilometres flown.
(From "Horizons" no. 114 September 2017)
The growing disapproval of the public soon led to safer flying: manufacturing and testing improved, vital systems were redundantly duplicated, and maintenance was strictly scheduled. Even psychologists helped improve pilot training by introducing flexible cockpit hierarchies, which improve the chances of survival when a captain is incapacitated. Nearly 90 years later, the rate of fatal aviation accidents is today 10,000 times lower.
It's not quite the same thing in finance. Crises continue to ravage entire nations with the same intensity. The rate of unemployment in Spain in 2012 – some 25 percent – matches that of the US in the 1930s. "There's a crisis every 10 years", overly keen economists remind us. But it's perplexing to note the fatalism of this industry, given all the time and energy it dedicates to gauging the price of the latest structured investment vehicle: the complex heart of the sector that Warren Buffett calls a "financial weapon of mass destruction".
Given the potentially catastrophic consequences, is it right for finance to carry on in this way? Just like aviation, economics is a science capable of advancement. It must progress first and foremost towards societal relevance, just as it must seriously render the economic system less fragile. The walls between schools of thought must be torn down, and the repeatedly exposed dogmas placed at arm's length, in particular 'efficient markets' and Homo oeconomicus, neither of which actually exist.
The challenges are enormous. We must anticipate the impact of both climate change and divestment from fossil fuel economics. There are the demographic shocks and the redistribution of global production to be absorbed. Social and environmental costs will need to be integrated into balance sheets, and alternative growth models developed for a world of finite resources. And given that certain conglomerates have become more powerful than some countries, we must also tackle tax evasion.
To bear this out, education will be critical. Universities craft the elite of tomorrow. We must work towards solving problems and not exacerbating them.
Daniel Saraga, chief editor