Thursday, 25 August 2011

Are salespeople the slaves of defunct economists ? Fight of the century Hayek versus Keynes

2012 October Related links
Britain Needs more Venture Capitalism Allister Haeath City A.M.
Master of Money BBC  Stephanie Flanders Economics Editor

“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood.

 Indeed the world is ruled by little else.

Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”John Maynard Keynes

I guess “practical men and women” like we professional salespeople should take note!

When I was struggling in my studies in economics in my twenties, there were not the fun ways to learn as of today.

“Fight of the Century" is the new economics hip-hop music video by John Papola and Russ Roberts and is well worth watching and listening to.

It’s both educational and entertaining if you like me need a refresher in economics. Round Two Hayek versus Keynes has had over a million views on you tube.

It's sequel is  “Fear the boom and bust rap!” Over 2 ½ million views on you tube

 Economic theories and models seemed to me all those years ago to depend on rather unrealistic, unverifiable, or very simplified assumptions, quite often because these assumptions helped with the proofs of  their desired conclusions or so it appeared when studying and to be honest struggling with the subject years ago.

Such assumptions included

  • perfect information,
  • profit maximisation
  • and rational choices.

For those of us who work in Sales these are pretty significant assumptions which we see contradicted by the real world daily in the markets we work in.

Nonetheless John Maynard Keynes and Friedrich August von Hayek - the prominent economists of the Great Depression of the last century who had sharply contrasting views are back in the news.

The arguments they had in the 1930s have been revived in the turmoil of our latest global financial crisis.

BBC Radio 4  recently aired a debate from the London School of Economics where Hayek at one time taught. In 1974 Hayek won the Nobel Prize for Economics for his pioneering work in the theory of money and economic fluctuations.
The iplayer link is

The debate was presented by eminent economists of our era - Lord Skidelsky ( Warwick University) and Professor George Selgin ( University of Georgia)
Friedrich Hayek did not believe it was possible to spend your way out of an economic crash .

Hayeck’s theory does not deny that one should maintain spending when boom turns to bust. But it goes further.

“The economy is like a drunk throwing up the morning after the night before ”
As Prof George Selgin University of Georgia quoted in the recent debate from the LSE broadcast on Radio 4.

Other Hayek quotes include
“To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.”
"We shall not grow wiser before we learn that much that we have done was very foolish”
Countering Hayek, JM Keynes said
“You can't cut your way out of a slump; you have to grow your way out. ” quoted by Lord Skidelsky University of Warwick

Keynes was scathing in his comments on Hayek's book, “Prices and Production”, which he called "one of the most frightful muddles I have ever read".
"….It is an extraordinary example of how, starting with a mistake, a remorseless logician can end in Bedlam."

In 1944, Keynes led the British delegation to the Bretton Woods conference in the United States. At the conference he played a significant role in the planning of the World Bank and the International Monetary Fund ( IMF).

A 2002 International Monetary Fund study looked at “consensus forecasts” (the forecasts of large groups of economists) that were made in advance of 60 different national recessions in the ’90s: in 97% of the cases the economists did not predict the contraction a year in advance. On those rare occasions when economists did successfully predict recessions, they significantly underestimated their severity.

Source : " How Accurate Are Private Sector Forecasts? Cross-Country Evidence from Consensus Forecasts of Output Growth", by Prakash Loungani, International Monetary Fund (IMF), December 2002

Well prediction of recession is a very hard business clearly. As professional salespeople our challenge is to sell on behalf of our businesses through the recessions and out to the other side.

Whether you are a Keynesian or Hayekian, as “ practical folk of the Profession of Selling” we need to avoid being slaves of any defunct economist.

But the question is - which one?!


I had a very nice email from Professor Selgin with some suggestions for further reading which I would like to share - both articles are interesting and stretching but worth the struggle in reading..

Dear Mr. Alford,

Thank you for your kind remarks regarding the Radio 4 debate.

.......Concerning the questions you ask, I’m afraid that I personally am unfamiliar with attempts to connect Hayekian economics to sales and marketing.

However I did find the two sources linked below, one by economists I know, the other a recent dissertation, exploring possible connections, I hope they may be of interest.......

George Selgin

Other links worth following

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