As soon as one considers the economy as a complex adaptive system in which the aggregate behavior emerges from the interaction between its components, no simple relation between the individual participant and the aggregate can be established.Yet an understanding of aggregate relationships is important, in order for participants to determine reasonable and responsible options in the marketplace. One can only hope this argument on Kirman's part, will be countered on concrete terms in the near future. Even though markets are complex and people sometimes appear as though irrational, basic coordinating functions for personal resource capacity are possible.
Consider for instance: what patterns of activity would specifically contribute to productive complexity and economic dynamism? What - on the other hand - can continue to serve as the "holding" patterns which logically follow primary resource gains? In the meantime, what personal and economic circumstance are responsible, when marketplace participants appear rational or irrational? In particular, I'll highlight two examples of apparent "irrationality": one psychological, and one monetary.
Even though resource aggregate potential tends to be well understood (hence well coordinated via price) in tradable sectors, basic coordination functions are not yet well understood for the time based product of non tradable sectors. As a result, skills capacity is often tapped in isolation, instead of in relation to existing or total aggregate skills capacity. In this environment, one's ability to take rational choice into account, still includes substantial investment risk. Indeed, one's personal time preferences (time value) may come into conflict, with what appears as marketplace rationality in terms of knowledge use. Some individuals will feel compelled to select studies that aren't in line with their natural inclinations or personal challenges.
Consequently, higher education is too often promoted for the economic access it provides, as opposed to the greater reward of experiential gratification and personal challenge. Unfortunately, the practical and the experiential become misaligned, when a majority of knowledge use only exists in secondary marketplace formation. And without a marketplace where personal time based preferences could clear in an aggregate capacity, more students are now inclined to cheat for the ultimate goal of economic access. Cheating is only rational, to the extent that too much of one's life choices have already been severely compromised.
Secondary markets for knowledge use are becoming a problem for monetary policy as well. Much of what appears irrational in terms of monetary policy, could be attributed to a growing political reticence, to support and maintain these secondary knowledge use markets on today's open ended fiat monetary terms. If so, this could partially account for excessive restraint on the part of policy makers and central bankers, in terms of nominal income and aggregate spending capacity since the Great Recession. For instance, the recent decline in healthcare expenditure, in an era of increased healthcare needs, may hold some important clues where the nominal income of time based product continues to be shorted.
It's hard for some of us not to believe that Janet Yellen acted irrationally, in her refusal to acknowledge the need for a new direction, at Jackson Hole this past week. What accounts for such stubbornness? Will not a thousand rational actions on the part of market participants be undone, by the Fed's irrational response to calls for change? Perhaps this quote from Adam Smith in "The Theory of Moral Sentiments" offers a clue, as to the refusal:
The opinion which we entertain of our own character depends entirely on our judgments concerning our past conduct. It is so disagreeable to think ill of ourselves, that we often purposely turn away our view from those circumstances which might render that judgement unfavorable.