Recently the world has been treated to the constant images of stranded air travelers in Europe and around the world. Closer to home, we've seen flowers being unpacked and discarded because they can't get to the European markets. All this has happened due to the impossible to pronounce Icelandic volcano whose ashes have been spewing for days. The standstill in global and more devastatingly European transport has lead to a huge bill for travelers, airlines and all the related industries. I am sure Pep Guardiola the Barcelona coach would vouch for this as his team had to travel all the way to Milan from Catalunya by bus, this clearly had an effect on his team's performances. However this is besides the point. The air travel regulatory authorities grounded all the transport due to safety concerns. On the other hand we had the airlines claiming that it could be safe to travel.

The difference between the two in my case boils down to two different approaches to scientific learning. The regulatory authorities were using computer models based on historic data to simulate what would happen if a plane was to come into contact with the ash. From a scientific perspective, it is worth mentioning that volcanic ash is in essence microscopic glass. Therefore if it would come into contact with a jet engine, it would melt immediately. As one would deduce, it would then solidify in the engine leading to pure catastrophe. Hails storms are bad enough, imagine boeing storms across continental Europe.

On the other side of the scientific argument were airlines who posited that they should undertake test flights so as to ascertain the real level of danger posed by the ash clouds. This was an old fashioned approach to science, where observation of real time data would lead to a clear conclusion. The pragmatist in me rooted for the latter approach. The IATA C.E.O. Mr. Giovanni Bisignani was a big advocate of this approach. Luckily some flights have been approved and slowly the world is travelling again.

So where does the economics and finance come in. After studying economics in depth, after sleepless nights trying to not fail advanced econometrics exams, after days in the library reading on stock covariances and correlations, I am of the opinion that it is all misplaced. I struggle to find the practical and real application of most of this issues in real life. It makes me think of the saying "If you give a man a hammer, everything to him looks like a nail". One could seriously make the argument that economists are more interested in applying their knowledge in calculus when studying the maximisation of consumer surplus, than they are in really understanding consumer surplus. A lot of the models have failed miserably in the past and even more so during the last global crisis. Modelling human behaviour is simply impossible and predicting it is even harder. However, economists have made this their life aim. From a statistical perspective, when so many models have failed, we should conclude that we should drop the models, just like statisticians drop variables that are not significant.

On the side of finance, it would take a really strong discussion for me to get the point. Warren Buffet always says that an investor should read annual reports and attend AGM's rather than study formula's with Greek alphabet terms. One example of the irrelevance is when CFA professors teach the Optimal Portfolio Theory. For a better understanding of my opposition to this you can send me an email, but the concept is way beyond lay man understanding. However, it basically makes unrealistic assumptions and even makes more unrealistic conclusions to develop a model that should eventually make money. No wonder the world is up against wall street. Maths should not be used to generate formula's so as to make money. If the Long Term Capital Management crisis of 1998 hasn't taught us anything then nothing will.

I guess where I am getting at is that too much energy is spent on the wrong things, defeating the essence of economics where we should maximise utility. In my view, the curriculisation (new word) of a branch of knowledge has lead to its deterioration. Let's make these two branches of knowledge more practical rather than more theoretical. Theory should be a precursor to knowledge rather than the knowledge itself. Knowledge and observation are the roots of the tree of theory, however nowadays finance and economics theories are like the mountains in avatar, they just float supported by nothing much. We should take the approach of the airlines and not the regulatory authorities.