Today I am bringing you a review that is slightly different of what I usually do. Usually I review novels, but since I read a book about economics and have some knowledge of the topic, I think it might be interesting to talk about The Blue Economy: 10 Years, 100 Innovations, 100 Million Jobs.
So first of all I will tell you something that you may know if you are a follower of this blog. I am a Finances and Accounting student and to do so I need to understand some of the basic concepts of economics. And believe it or not, even when finances and economics are related in some ways they are not the same. Say that I will also say that as this book is a Report for the Club of Rome, which is an organization in which politicians and some of the most influential entrepreneurs of the world meet and talk about how things are going.
With no further do I am going to start talking about the book.
To be honest, I've never ever being is such a strong disagree with an author. I know, obviously, that not all can think the same but as he expresses his ideas I would like to express mine. However I am not an expert; I am just, as I just said before, a Finance and Accounting student and even when I might have some ideas and opinions on these topics, those are not the absolute truth but just my opinion.
First of all Gunter Pauili should be nicer to all economist in the world since he is one of us. And secondly, I will say that, for me, it felt like he thought that we, finance people are just idiots and all that we do is for nothing. Am I losing 4 to 6 years in my life doing my bachelors in Finance? I don't think so. And also I am under the impression that he thinks that running the numbers to see if some project is profitable or not is like make a deal with the Satan itself.
I know that mostly all CEO or CFO had studied a lot of years and have a lot of experience. There are a few cases of CEO that might not have either the expertise or the studies but they compensate it with a lot of self-learning and very hard work, as I know for a fact and just to give you an example, the case of the father of one of my closest friends, who belongs to the group of those who have work really hard. Therefore I am pretty sure that If all the ideas that mister Pauli presented in The Blue Economy were that good, someone would have taken them into account.
I've studied for almost 3 years how a company's CFO calculates and helps the CEO to choose whether to invest in one project or the other or not to invest at all. If all this ideas were so wonderful, trust me they will be happening right now. Let me get a little technical and tell about 3 methods that CFOs and Financial departments use to see how good an investment is.
NPV. This method is the more used because it takes into consideration the changes in the value of the money through time. You take into consideration the investment and the expected clash flows that this project will have. Of course you know that estimate is hard, and for that, we do have formulas that predicts tendencies and all that stuff as well, bit I do not want to bore you.
IRR. This one is calculated in a similar way to the VNA. The main different is that instead of calculating how much money we will have at the end, you calculate the estimate interest rate that the investment will generate. This one is used, but least than the previous one, because they might come to different conclusion, basically for mathematical reasons.
PAYBACK. This method is used to know how long it will take to recover our initial investment. Is not as good as the two previous ones, because is a static method, which means that it doesn´t take into consideration how the value of the money changes because the pass of time.
But aside of those methods, there are departments that deals exclusively with the study of the risk with stochastic models. That are models that help to predict what is going to happen with economics variables, but that are also applied in so many other things. My point being, that they don´t turn down a project because they want to. So trust me when I say that we finance people are not idiots.
Of course some of you will disagree with my latest phrase. If finance people are not idiots, how it is that the most recent recession was one of the worse on history? Well, because we are dealing with a social science that is dealing with a lot of factors and social sciences are mostly subjective. But to go a little bit deeper I will say that I found that the main reason of the crisis was that the bank sector did not trust in Dr. Michel Burry when he said that the whole credit and housing bubble was going to collapse. If you are interested in the topic I highly recommend you to see The Big Short.
But going on with what I was talking about, if we accept his point of financial people being fiends. I will say that he is forgetting about two very important facts that are the most basic thigs about economics. In one hand, there is the fact that there is not in the world one single country in which capitalism is completely implemented; the Governments are always intervening and correcting when the volatility is too high, if we believe in what Adam Smith said, the markets will eventually correct themselves without any intervention needed. In the other hand, even when he mentions in some pages the scarcity, he seems to forget that it is the main premise of economy itself.
However, I have to say that I find quite interesting some of the ideas that he proposed, not all, but some. I like the chapter related to the coffee residuals, and actually I think is the most viable one, not only because it has been already implemented but because it´s really efficient. And if you know just a little bit of economics you will agree with me that efficiency is one of the things that we like the most.
So that´s all for todays review. I hope you enjoyed and I will really love to hear your opinions. Leave a comment down below so we can discuss about it.
See you all soon.