Tuesday, January 3, 2017

Various factors drive asset market prices

Robert Hutchins who in 1929, at the age of 30, was named president of the University of Chicago thought that, “My idea of education is to unsettle the minds of the young and inflame their intellects.”

Hutchins’ idea that education should unsettle the mind and inflame the intellect – in essence arise the students’ curiosity – is spot on.

I believe that economists and investors should be curious about everything because even though they may regard some issues to be irrelevant for their investment decisions, factors such as geography, history, tradition, religion, history, psychology, law, social structures, etc. may have an impact on the economy and on asset markets. 

Similarly, Robert Skidelsky, Professor Emeritus of Political Economy at Warwick University and a fellow of the British Academy in history and economics writes:

“What unites the great economists ….. is a broad education and outlook. This gives them access to many different ways of understanding the economy. The giants of earlier generations knew a lot of things besides economics. Keynes graduated in mathematics, but was steeped in the classics (and studied economics for less than a year before starting to teach it). Schumpeter got his PhD in law; Hayek’s were in law and political science, and he also studied philosophy, psychology, and brain anatomy.

Today’s professional economists, by contrast, have studied almost nothing but economics. They don’t even read the classics of their own discipline. Economic history comes, if at all, from data sets. Philosophy, which could teach them about the limits of the economic method, is a closed book. Mathematics, demanding and seductive, has monopolized their mental horizons. The economists are the idiots savants of our time”