Personal Perspective Series - The Cause and Effect System
Look at the collapse of giant financial institutions that happened in 2008.
What is wrong with them? They are not new companies and definitely not new in that business.
Some exist for more than a century.
Mismanagement? That is definitely the case.
But let us evaluate further deep, beyond the management.
The human factor.
There is always cause and effect.
Believe it or not, nature is a balance system.
Any disturbances to the nature will cause effects.
Being part of nature, human's life also follows, what I call, cause-and-effect law.
Problems occur when a cause makes many effects.
We cannot anticipate all possible effects to overcome them all.
Scientists can minimize possible effects by having a series of small scale experiments in laboratories.
All possible effects can be detected so overcoming adverse effects can be prepared.
Isn't that great? Now, how can economists and policy makers do the same? Most likely they can't.
What is the difference? The object is different.
In a science experiment, the object is human's body or plant or animal.
With a logical thinking the effects of certain treatment applied can be predicted.
Even the behavior of animal can be predicted.
How about human behavior? Many studies have been made to learn human behavior.
There are theories declared by psychologists or behavior analysts to predict human behavior.
Yet, some exceptions happen then new theories are born.
Essentially, human behavior is much unpredictable.
I believe there will not be any sets of theories combined to better explain and thus predict human behavior, especially, when it comes to human interaction in a social and economic set up.
It is really as complex as it seems.
When a new policy is applied, literally no one can anticipate all changes in human behavior in response to the policy.
Some policy makers can claim to be able to predict the response.
Is it true? Predictions are made based on analysis of historical data.
The important factor in analysis of historical data is the timing and the actual situation when it happened.
As social values changes, the human behavior can change too.
When we talk about financial issues, the object remains the same, human.
Business and finance as part of it involves human.
Monetary policies made and successfully applied in one country may not have the same result when applied in other countries.
The different social and economic condition makes different result.
So different social and economic set up results in different human behavior in response to the same policy.
This is the key.
Those financial institutions must have made lots of analyses.
No one can better predict what happens recently with them.
What the analysts comment about what happened is purely based on what already happened.
But do they foresee this? If it is so easy to know the future everybody can easily be rich.
As simple as that.
If only we know that subprime mortgage can definitely cause such a chained reaction causing the collapse of world economy, are we brave enough to try implementing the policy?
What is wrong with them? They are not new companies and definitely not new in that business.
Some exist for more than a century.
Mismanagement? That is definitely the case.
But let us evaluate further deep, beyond the management.
The human factor.
There is always cause and effect.
Believe it or not, nature is a balance system.
Any disturbances to the nature will cause effects.
Being part of nature, human's life also follows, what I call, cause-and-effect law.
Problems occur when a cause makes many effects.
We cannot anticipate all possible effects to overcome them all.
Scientists can minimize possible effects by having a series of small scale experiments in laboratories.
All possible effects can be detected so overcoming adverse effects can be prepared.
Isn't that great? Now, how can economists and policy makers do the same? Most likely they can't.
What is the difference? The object is different.
In a science experiment, the object is human's body or plant or animal.
With a logical thinking the effects of certain treatment applied can be predicted.
Even the behavior of animal can be predicted.
How about human behavior? Many studies have been made to learn human behavior.
There are theories declared by psychologists or behavior analysts to predict human behavior.
Yet, some exceptions happen then new theories are born.
Essentially, human behavior is much unpredictable.
I believe there will not be any sets of theories combined to better explain and thus predict human behavior, especially, when it comes to human interaction in a social and economic set up.
It is really as complex as it seems.
When a new policy is applied, literally no one can anticipate all changes in human behavior in response to the policy.
Some policy makers can claim to be able to predict the response.
Is it true? Predictions are made based on analysis of historical data.
The important factor in analysis of historical data is the timing and the actual situation when it happened.
As social values changes, the human behavior can change too.
When we talk about financial issues, the object remains the same, human.
Business and finance as part of it involves human.
Monetary policies made and successfully applied in one country may not have the same result when applied in other countries.
The different social and economic condition makes different result.
So different social and economic set up results in different human behavior in response to the same policy.
This is the key.
Those financial institutions must have made lots of analyses.
No one can better predict what happens recently with them.
What the analysts comment about what happened is purely based on what already happened.
But do they foresee this? If it is so easy to know the future everybody can easily be rich.
As simple as that.
If only we know that subprime mortgage can definitely cause such a chained reaction causing the collapse of world economy, are we brave enough to try implementing the policy?
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