Aristotle’s wisdom

I came across this saying, which has been attributed to Aristotle, the Greek philosopher: “Bring your desires down to your present means. Increase them only when your increased means permit.”

It may be said that Aristotle’s own countrymen have had to learn this lesson through the hard way for the last number of years, ever since the country was bailed out to avoid it going into default with a number of banks.

However, two considerations came to mind when I read this saying. First, we need to appreciate that these words of wisdom apply not just to individuals but also to companies and governments, and as such to nations as a whole. Using borrowing to fund recurrent or operational expenditure is a foolish thing to do.

One may appreciate that an individual, a company or a government would borrow money to make an investment that would eventually improve the wealth of the subject but borrowing money to fund one’s present expenditure is only creating problems for the future.

It is always difficult to determine which words of wisdom one should listen to. Maybe we need to remember that we should listen more to our common sense

It is for this reason that we should all be mindful of our expenditure, as not doing so could send us down the road that modern day Greece went.

The second consideration is that when one considers that Aristotle said these words some 2,300 years ago, one notes how little the world has changed since then. With all the change that we have experienced since Aristotle’s time and especially the changes of the last 50 years or so, human beings still remain such and commit the same errors over the centuries and millennia. In effect fundamental human behaviour changes very little.

The economists’ wisdom

This second snippet may sound like a self-bashing exercise. I say this because I graduated in economics and I have had the opportunity to teach the subject. However, the world – and the population that lives on this planet – is right to expect some accountability from economists.

In most if not all other jobs, the person that does not deliver what is expected is deemed not suitable for the post. As such one is very often shown the door and asked to move on to make place for someone else. It seems that this does not apply to economists.

The example that is very often given to illustrate this is the inability of economic analysts to recognise the size and risks posed by the housing bubble in the last decade. This failure has been very costly to the population in the United States and the rest of the world. It triggered a series of events that have led to millions of jobs being lost and an impoverishment of large sectors of the population across most countries in the Western world.

Let us take this a bit further. Many seem to blame the crisis in the financial markets that caused the recession.

This has become like conventional wisdom, which even I had accepted. However, this is now being seen as very much secondary. The overwhelming reason for the downturn and the weak recovery was the collapse of housing bubbles fuelled by credit in the US and elsewhere that were driving growth. Once the bubbles were burst, banks were heavily exposed and the financial crisis set in.

A comparison has been made between the projected gross domestic product of the US made in 2008 for the following decade and the actual GDP since then.

The error in the projection has been to the tune of $1.8 trillion per annum. That means something like $54,000 per person living in the US. On the basis of such projections, economic policies are developed.

So the impact of listening to wrong words of wisdom being imparted by economists is easy to understand.

So we have two opposing situations. On the one hand there are words of wisdom that we would do well to heed, while on the other hand we had words of wisdom that should not have been listened to.

It is always difficult to determine which words of wisdom one should listen to. Maybe we need to remember that we should listen more to our common sense.