Why do so many people—including highly educated individuals—fail to properly grasp economic reality? This is not solely due to the complexity of money and financial markets. Economics, education, the banking sector, politics, the media, and even our own thought patterns also play a significant role. Together, they create an incomplete picture of reality.
A striking illustration of this knowledge gap can be found in the book “La crise incomprise – quand le diagnostic est faux, les politiques sont néfastes” (see here). It shows how inadequately the 2008 financial crisis was analyzed by economists, policymakers, and financial institutions, resulting in harmful policy decisions.
The economy is a complex system in which countless factors constantly influence one another. As a result, simple cause-and-effect explanations are usually insufficient. This article examines the main causes of this structural knowledge deficit.
Gaps in economic science
Economics is about money and financial markets, about work, production, and consumption, about trade and globalization, but it also deals with raw materials, ecology, climate, energy, demographics, technology, taxation, politics, and geopolitics. The study of psychology and sociology also seems important for gaining some insight into the financial and economic behavior of individuals and groups. A primary challenge, therefore, is undoubtedly the multidisciplinary nature of economics: many factors come into play.
The ups and downs of the global economy are thus influenced by a vast number of factors. Each of the academic disciplines mentioned has produced a great deal of information. However, the integration of all that knowledge across the boundaries of these various disciplines occurs only to a limited extent.
Many economists focus on monetary and economic variables and pay less attention to the importance of raw materials, ecology, energy, and other factors outside their own field of expertise. A holistic analysis of relevant data is rarely, if ever, conducted.
In his book "Economics: A User's Guide", the well-known South Korean economist Ha-Joon Chang demonstrates that there are no fewer than nine different schools of economic thought. How could a field of study that lacks sufficient insight into its own theoretical diversity be capable of providing a coherent overall picture of economic reality?
Unlike the natural sciences, economics involves value judgments: how wealth should be distributed, how the public interest can best be served, how to bring about social improvements, and so on. Every economic policy ultimately stems from political choices and often from a moral perspective as well. Economics is therefore not merely a technical science, but also has an important political dimension. It is not an exact science in the sense of the natural sciences, and will likely never become one.
Gaps in education
The education system often encourages specialization. From a young age, students are required to make choices. Universities are divided into faculties. Skills such as systems thinking—the ability to see how everything influences one another—and interdisciplinary thinking—the ability to integrate different fields of knowledge—are undervalued. Too few people are being trained to bridge different fields of expertise. Those who are trained exclusively within a single discipline often see only part of the picture. Major societal problems, however, do not respect the boundaries between universities, faculties, or fields of study.
Education, as it is organized today, has shortcomings in the transmission of knowledge. For example, history has been a neglected subject for decades, even abroad. Until the 1980s, subjects such as economic history and the history of economic thought were an important part of the economics curriculum at many universities. Today, they receive far less attention in many programs. However, the field of study that examines the rise and fall of nations and civilizations is immensely instructive (read here, here, and here). Knowledge of financial and economic history is truly useful because it reveals both the successes and the failures of economic theories and policy decisions.
The topic of money and economics also receives too little attention in general education. Our monetary system is one of the least well-explained concepts in the academic world. Those who have studied monetary economics have a much better understanding of how the system works. And those financial economists often work for governments, major banks, and asset managers.
Banking: complexity and profit-seeking
When the financial crisis broke out in 2008, it became clear that many managers at megabanks did not fully understand their own products. Ha-Joon Chang, mentioned earlier, notes in his book *Economics: A User’s Guide* how bankers often admitted to not reading through derivatives contracts running several hundred pages due to a lack of time. The functioning of financial markets and new monetary techniques and products is so complex that even within the financial industry, only a limited number of people truly understand them.
A prime example of this is the Greek debt crisis. In 2015, American consultant Glenn Kim, a former employee of the investment bank Lehman Brothers, became closely involved with the Greek government and the negotiations surrounding the bailout package. The fact that a government would turn to outside specialists during such a severe financial crisis speaks volumes about the technical complexity of the modern financial system.
If you set aside the complexity of speculative techniques and central bank policy, the way the monetary system works is actually quite simple. Take a look at the book "Geld komt uit het niets" by the Dutch author Ad Broere. When commercial banks extend credit, they create deposit money. This new money is matched by a debt on the part of the borrower and a claim on the part of the bank. For most of history, the value of money was backed by gold, silver, or a combination of both. It wasn’t until the twentieth century that most countries gradually switched to fiat money, which is no longer backed by precious metals. Fiat money therefore derives its value from trust in governments and central banks.
This effectively unbacked money is lent to governments, businesses, and households and subsequently flows back to the source in the form of interest. This system yields significant benefits for those closely involved in the creation of money. Commercial banks create a significant portion of the money in circulation through lending. When a bank grants a loan, a deposit is simultaneously created in the borrower’s account. When the principal of that loan is repaid, the money created in the process disappears again. This entire mechanism is little known to many people and contributes to the fact that many have an incomplete understanding of our monetary system.
Furthermore, the financial sector pays very well. That is why a powerful and active lobby is doing everything in its power to preserve this profitable structure—and to prevent certain fundamental questions about the financial system from receiving too much attention.
According to Dutch financial and economic expert Diederik Schmull, there are few good analysts in the financial sector. Moreover, anyone who expresses a well-supported opinion—for example, about an impending market downturn—which could deter clients from investing in the stock market and thus negatively impact commissions and bonuses, is viewed with suspicion within the bank and may even miss out on a promotion. Selling products and making a profit: that’s what it’s all about.
If analysts, due to a lack of expertise or courage, are unable to recognize or communicate about future financial and economic crises, it is understandable that the general public remains completely in the dark.
The intertwining of political and financial power
Many governments, with China leading the way, try to present statistics on unemployment, inflation, public debt, and so on in the most favorable light possible. This sometimes makes it difficult even for insiders to accurately assess a country’s true economic situation.
At the time of the 2008 banking crisis, insiders noted that there were not even 10 members of the Belgian parliament who understood what was going on. Lawyers are also heavily represented in Western parliaments, while economic and financial expertise is far less prominent. This is problematic, because those who make important decisions about public finances, taxes, banks, debt, and economic regulation should, at the very least, have a fundamental understanding of these matters. In general, it can therefore be observed that, when it comes to money and the economy, the political class often displays a glaring lack of essential knowledge.
Not only are members of parliament approached by banking lobbyists,
but prominent politicians are also sometimes offered positions on boards of directors or advisory roles at financial firms during or after their political careers (read here, here, here, and here). In the United States, presidents and presidential candidates are sponsored by Wall Street. European political decision-making is also closely intertwined with the financial world. A key factor in this context is the fact that these large financial conglomerates are major buyers of government bonds. This explains why politicians tend to “handle” the big banks with kid gloves. After all, the interests of governments and large financial institutions run parallel at certain times.
Failing mass media
Anyone who takes a look at the media landscape will discover that a high degree of concentration has developed here. This is true not only at the level of news agencies, but also across all major media channels (television, radio, print media, and the internet), which are largely controlled by a limited number of large corporations or individuals (read more here, here, here, and here). Media concentration is particularly significant in Belgium. The global media complex, through the transnational dissemination of information, has become a very important source of knowledge transfer. In this context, the testimonies of journalists such as Janneke Monshouwer, Udo Ulfkotte, and others demonstrate that the press does not operate independently and that other interests may also play a role.
Both the intricacies of the financial markets and the workings of the macroeconomy are complex phenomena. They cannot be explained quickly and in a flashy way. Exclusivity, speed, digestibility, and marketability are today's watchwords. All too often, many journalists limit themselves to simply copying, cutting, and pasting articles and images from international news agencies. That doesn't mean, however, that quality investigative journalism no longer exists. It's just that, due to economic pressures on media companies and the constant flow of news, it has less and less room to thrive.
Prominent economists interviewed on television are given barely a few minutes to explain their views. And who among us can still see the forest for the trees amid the daily avalanche of information?
More conditioned than we think
We are social beings who like to conform to a certain set of ideas and to how others think. This “groupthink” is a real phenomenon that arises in politics, business, social interactions, and also in the financial world. A correct but dissenting analysis or a differing opinion that threatens the prevailing consensus is rarely welcomed with open arms. The German philosopher Arthur Schopenhauer put it this way: “Every truth goes through three stages. First, it is ridiculed. Then it is fiercely opposed. Finally, it is accepted as self-evident.”
In this context, psychologists refer to “cognitive dissonance”: the discomfort that arises when facts clash with our beliefs. We often try to resolve that discomfort by ignoring, downplaying, or reinterpreting conflicting information. After all, we’d rather see and hear things that confirm our existing worldview than those that call it into question.
In that regard, the legend of Cassandra is particularly illustrative. She predicted the fall of Troy, but no one believed her. The moral is timeless: the bearer of bad news is rarely popular, while ignoring an uncomfortable warning can have major consequences. Added to this is another psychological mechanism: people tend to believe that tomorrow will largely resemble yesterday. As a result, warnings of fundamental changes are often underestimated or simply dismissed.
In addition to beliefs, incentives also play an important role. People defend ideas not only because they believe in them, but also because their careers, incomes, or social status are tied to them. As a result, certain views can persist for a long time, even when the facts become increasingly difficult to ignore.
The financial and economic reality is complicated. However, people need simple explanations and clear certainties. Complexity is uncomfortable. That is why simple narratives often prevail over nuanced analyses, even when the latter are closer to reality.
Summary
Economists suffer from a silo mentality and tell us nothing about the bigger picture. Economics is not an exact science. In education, subjects such as history, money, and economics are neglected. In the financial world, highly complex techniques are used, profit is the top priority, dissenting opinions are frowned upon, and very few people understand how the global monetary system actually works.
Politicians like to present statistics in the most favorable light possible, are “influenced” by all kinds of pressure groups, and maintain close ties with the financial sector. The concentration of ownership in the mass media and the power that stems from it is cause for concern. In-depth and independent research is given too little space within these media outlets. Moreover, the general public suffers from a kind of deafness and blindness caused by the daily tsunami of information and a certain degree of conditioning.
The difficulty lies not only in the complexity of economics and money. It lies primarily in the fact that economic reality is filtered through scientific paradigms, political interests, financial incentives, media selection, and human psychology. Anyone who wants to understand money and economics must therefore look beyond a single discipline, a single theory, or a single news source.
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