Capital Markets Research ... what is it?

What is Capital Markets Research?  Simply put, it's research where we use the capital market prices and volumes to determine if we can detect the effect of a certain event. So, if a firm makes a a positive announcement, we would expect the stock price for that firm to increase.  

While the intuition is simple enough, there are many complicating factors in the real world that make it difficult to be certain that there is such an effect.  Some fancy statistics is required (which I do not cover here).  Nevertheless this is one of the great leaps forward in accounting and finance research that was able to really pull the research back to stronger scientific approach. 

Positive and Normative theories, Inductive and deductive methods. What's the difference?

 

Let's try and separate the concepts of normative, positive, induction and deduction. First off, we need a distinction between the types of theories and the methods of proof that we use to test their validity. 

Here's an analogy:

  • Proof by INDUCTION and POSITIVE theories are kind of like ROAD and CAR
  • Proof by DEDUCTION and NORMATIVE theories are kind of like RUNWAY and AIRCRAFT

Roads and runways kind of look the same, they are black, hard, made of the same stuff, but they have very different designs and do very different things.

Cars and planes both get you places, but again, have very different uses. Which one is better? Well that depends on what you are doing. I can't just take a plane to Chadstone shopping center. Really a a car is only the best tool for this job. 

Naturally a car matches the road, and runways are used by planes. But they can swap if they have to. Cars drive on runways all the time. There are MANY cases of planes landing on highways in emergency because it's better than crashing. 

This what I mean by theories and their methods of proof crossing over. You simply use whatever theory is best able to do the job. 

For illustration, have a look at this image below. Cars, roads, planes, and runways all in one image. It's one of the few places where the country's main highway also crosses their international airport. You'd make sure you don't mix up the differences between road and runways here otherwise there could be a very messy outcome. So too it is with your theories. Mixing your meaning often means your ideas will crash. 


And this is 100% real. No Photoshop. 


 

The point is, don't confuse the two. If I want to fly to Gibraltar, I wouldn't say "I'm going to take the runway to Gibraltar". Likewise, I wouldn't say my idea is deductive. Instead you would say "I have a normative idea and I will show you how it works using deductive methods".

I hope this makes the idea clearer for all! 

-Tetracarbon out

Follow me on twitter @tetracarbon or subscribe to my YouTube Channel

Is education a commodity or a public good?

 

Is education a commodity or a public good? 

I'm not convinced that education is either commodity (fully fungible privately owned good) or a public good (owned by all, commonly enjoyed benefits). BOTH ideas have significant faults and BOTH are misleading.

Individually quality assured. I'm uncomfortable with education being "public" because the graduate is the person who privately extracts the most benefit from the education in the form of higher wages. People don't endure accounting degrees because they love it, they do it for purely selfish reasons such as employment. Sure public benefits from education, but that doesn't make it a public good. The public benefits from Cole or Woolies because we don't stave, but that doesn't mean selling food is a public good. Education is also experiential (not a physical good), it's a deeply personal thing.

Sometimes, we handle iron ore with 
more care than we do our students.
Nor is education a commodity. The “commodity” tag implies that you can just beat things down on price because it’s all “about the same”, but high end talent isn’t really like that. Commodities are bought (not earned), and you can always own infinitely more of the stuff. So, you don’t really “own” education, but nor can we say that it’s publicly “owned” either. Education is limited to lifespans, memory loss, attention spans. There is really only so much you can do with 24 hours (unless there’s 25+hours in your day). Further, public goods (like beaches, air, safe environments) are consumed without any effort. Conversely, it takes are fair whack of effort to both get an education, and yet more effort to actually use the knowledge in the community/workforce.   

I’m sceptical of analogies, but here goes:

It might be better if we think of we re-think of education as part of the “privately embodied infrastructure”.  Education is more like a private toll bridge. It goes somewhere that people want to go, and the provider can charge a price for the public to use it. Many decide to give it away for free, others charge high prices (think of the last time you had to use a medical specialist). 

I don't really care if you think of it as a 
"public benefit " or not, but somebody has to pay.Sure, some people go to school so they can be doctors in remote areas and willing chose to receive close to zero pay. But is totally selfless altruism true of half of our students? Even 10%? I don’t think any of my accounting grads enrolled because they felt that society would be better off if we “protected investors by providing them with the most truthful and useful information needs when choosing to allocate their resources” – yet that’s exactly what accountants do! People engage in education at great personal expense because it mostly yields private rewards. Positive effects on society is an externality. 

As educators, we are more like architects who show people how to build their own infrastructure, but we cannot install it for them.  When people pay tuition fees, they are buying themselves opportunities.  They are not buying a “thing”.

Education is a society building experience. I don’t believe it is a commodity, nor is it a public good. 

 

Observation to an Asian on Western writing styles: "less art more haste"

 

Observation to an Asian on Western writing styles: "less art more haste"

The following is an excerpt of feedback given to a Chinese student after reading their Advanced Accounting Theory report:
-----------------------------------------------
Dear STUDENT:

Observation on writing styles: 

There are several things that I find frustrating when reading your work. You over rely on quotations.  You do not say the most important thing first, instead you wait until the very end of your argument before getting to the point. Under Western writing styles, you need to assume that your readers are lazy and disinterested. In order to hook their attention, you must state your argument first, and subsequently go on to prove your argument.  You need to demonstrate that this is your own writing, and that you personally have a solid grasp of the concepts. Any evidence you cite is merely supporting what you are saying.  But at all times, this writing is your voice, except when you use direct quotations. Direct quotes shows that this is somebody else's voice speaking.

This is very different to writing styles under Confucius heritage cultures (ie, writing in Asia). Quotations are far more acceptable in Asia, as it is understood that students do not have their own voice, and are able to gain perfection by using the voice and tools of the masters. Therefore many Asian students use large numbers of quotations to show they can speak with the voice of a master. Unfortunately  this  is not appropriate to do so in the West.

Writing in Asia also tends to be far more circular. If you were to write your main argument in the first sentence in a Chinese language essay, this would be considered rude, and very direct. In the West, we believe that this makes for "honest" dealings. The Western reader understands who you are and what you are saying straight away. Confucius heritage cultures might consider this to be "blunt", or lacking any "art".

This system of writing is not something based in schools alone; your business audiences will demand this structure even stronger than I will. Irrespective of if you become an accountant in Australia, or you return to Asia, when you write in English you need to follow this style.

As a business teacher in a Western education system, I am trying to train you to write as a Western business person. This is not to say that your Asian way of writing is wrong – it is not wrong, it is just different. However when you write in English, you must write as your English speaking audience would expect.  Therefore you must translate both the concepts and styles, as well as the words. This is an extremely difficult thing to do.

So I am quite understanding. But at the same time I need to award marks based on a Western style of writing and education. I want you to speak with a Western strength in English, and with the beauty and wisdom of Confucius in Chinese. At all times, I want your writing to be respected.  

I wish you all the best for your exam.

-Tetracarbon out

Regulatory capture theory

 

Regulatory capture theory

 by Doris Luya Xiao

dorisluyaxiao at gmail dot com



Capture theory was introduced by George Strigler (1971) that says a firm or an industry can benefit from the legislation if it captures the related regulatory body. In Public interest theory government find some firms or industries have issues that may harm the society. To protect social interest from those harms, government set regulatory body to regulate thebehaviour of those firms and industries. The regulatory body could be officers, legislations or guiding principles. They monitor organizations to act good for the public. Capture theory agrees that regulations are introduced aim to benefit the public at first. But the aim will eventually fail because as time flews regulator are controlled by regulated party (firms or industries), and then regulator will protect the 'regulated party'. Industries are unhappy about being monitored. They could have more benefits or profits without regulation. Those greedy industries will do whatever they can to capture or we could say control the regulatory body. Once industries succeed in controlling, regulators can no longer perform their roles to regulate. Furthermore, regulators being captured will make new decisions in favor of industries rather than the public.
Capture theory was developed while the decline of [[Public interest theory]] during the period of 1967 to 1983(Merrill 1997). Rather than describe the reason to introduce regulation, it emphasis on the development of regulation. In reality there are many cases all around the world support this theory. In Australia the former ARSB was captured by accounting professions; Tobacco industry in China had captured the State Tobacco Monopoly Administration; American had the Federal Reserve Bank of New York captured. In spite of this, the capture theory is not perfect. There are criticisms of this theory.

Illustration of Capture Theory

Structure of theory

Assumption

The regulatory capture theory was build based on following assumptions:
  1. The regulator agency, regulated party and customers are all greedy and seeking to maximise their own interest.
  2. All interest related party have a rational expectation for another party.
  3. It might take a long period of time and huge effort for industries (regulated party) capture the regulator. To get though this theory the impact of cost of capture to efficiency should be ignored.

Arguments

One of the arguments is that the interest of a regulated party was harmed by a regulation; the regulated party want to get its interest back, and then it seeks opportunity to control the regulator. Also regulated party expects that by controlling the regulator, legislating will be in favour of parties subject to regulation. Considering the perspective for the regulator agency, its survival depends on satisfying the expectations of regulated party. If the regulated party does not exist anymore, the regulators are no longer needed.

Conclusion

All of the above concludes that regulators cannot keep their independence; and regulation will eventually lose its basic aim to regulate.

Capture of accounting standard setting in Australia

Background

Before ASRB (Australian Accounting Standards Review Board, later replaced by AASB) was established in 1984, according to Walker (1987), it is the accounting profession who is in charge of accounting standard-setting process. Only members of profession will be sanctioned for non-compliance. That is, accounting profession acts on both regulator and the objective of regulation. At that time, over 40% of company were found fail to comply with the accounting standards. Public confidence in capital market was reduced. ASRB was then established for public good to increase the level of compliance.

Regulatory capture evidence

Here are some evidences on ASRB were captured:
  • While discussing the establishment of ASRB, accounting profession lobbied to ensure that the board would have no independent capability, no academic as chairperson, and would receive administrative officer instead of a research director.
  • In 1985, ASRB update its procedures to ensure priorities would only be set after consultation with AARF (directly controlled by accounting profession). Its priority was previous set on the basis of public submission.
  • The board initially put AARF and other interests group in the same ground. Later, it changed to offer a fast track procedure only for dealing with submission from AARF.
  • Most members of ARSB were professional accountants and financial directors. The regulator lacked independence.

Capture of China cigarettes

The Economist (2014) published an article about the monopoly tobacco industry in china and the government’s control in this area. It seems that tobacco industry have captured the tobacco regulator.
The problem tobacco bring to health have become more aware in global. Below is a table of what World Health Organsation suggests on prevention of tobacco and China's action.
WHO SuggestionChina PerformanceDepartments issue reliable data on tobacco use.China lacks disclosure on tobacco use.Government sweeping imposition of smoking bans.This issue is still on discussion.Government set well-funded accessible scheme to help people quite smoking.Little funds were set in China.Broadcast on the harms of tobacco.Not many people know the harm.Complete ban on marketing.Cigarette brands are seeking chances to survive.Impose high tax on tobacco.Cigarette in China is quite cheap, everyone can afford it.

Obstacles

In fact China agreed that WHO was right on banning cigarette. There are numerous policies on forbidden smoking in public area. First lady of China is the official anti-smoking ambassador. But there are obstacles on dying out smoking in China.
First, the tobacco business and the government are entwined with each other. This relationship prevents the efforts of smoking ban. This could be seen from the above table. The largest part of government revenue is from tobacco industry.
Second, the tobacco industry is almost monopolized by China National Tobacco Corporation. The State Tobacco Monopoly Administration plays the role on monitor. However, these two organisations have intertwined structure and they share managers and use the same website. The situation is that the tobacco industry regulates itself.
It’s clear that there are many ways china could adopt to prevent smoking. But as the regulation setting process is controlled by the Tobacco Co, the law cannot be so persuasive on regulate tobacco in China.

Capture of Federal Reserve Bank of New York

In this case the Federal Reserve Bank of New York (New York Fed) regulate Wall Street banks though the Federal Reserve Banking System. The New York Fed should be independent from the Wall Street banks considering its role as a regulator. However, the president of NY Fed is selected by a board formed with some of the Wall Street banks. Timothy Geithner who was the president of NY Fed from 2003 to 2009 always had a closer relationship with Wall Street while in position (Becker & Morgenson 2009).
During the 2008 financial crisis, Geithner made NY Fed purchase credit default swaps from AIG. In return banks received full value payment. Usually when a company wind up, creditors may be court ordered to accept payment at a discount value, otherwise taxpayers will suffer. Thus the full payment on the AIG debts was unusual; and Geithner argue that this was to save the banks from their own mistakes. He also refused to disclose the hidden parties benefit from this activity (Reilly 2010).

Criticisms of capture theory

According to Posner (1974) this theory has some weakness in its theoretical foundation. There are questions cannot be answered. Though the theory describes that the deal between regulatory agency and the regulated party affect regulatory process, it does not suggest what process the regulated party did to capture the regulator. Customer’s interest will also be affected by the new set up rules. The theory did not explain why customers cannot capture the regulatory agency to protect their interest. Now that the regulated party have the ability to capture the regulator, why don't they prevent the creation of regulatory agency in the first place?

Reference

‘Government coughers’ 2014, The Economist, 1 March, viewed 1 April 2014, http://www.economist.com/news/china/21597958-smoking-course-kill-100m-chinese-people-century-will-latest-anti-smoking.

Becker, J & Morgenson 2009, ‘Geithner, member and overseer of financial club’, The New York Times, 26 April, viewed 7 April 2014, http://www.nytimes.com/2009/04/27/business/27geithner.html?_r=0.

Merrill, TW 1997, ‘Capture theory and the courts: 1967-1983’, Chicago-Kent Law Review, vol. 72, viewed 1 April 2014, http://scholarship.kentlaw.iit.edu/cklawreview/vol72/iss4/6.

Peltzman, S 1976, 'Toward a more general theory of regulation', Journal of Law & Economics, vol. 19, no. 2, pp. 211-240, viewed 1 April 2014, http://www.nber.org/papers/w0133.

Posner, RA 1974, 'Theories of economic regulation', Bell Journal Of Economics & Management Science, vol. 5, no. 2, p. 335, viewed 1 April 2014, http://www.nber.org/papers/w0041.

Reilly, D 2010, ‘Secret banking cabal emerges from AIG shadows’, Bloomberg, 29 Jane, viewed 7 April 2014, http://www.bloomberg.com/news/2010-01-28/secret-banking-cabal-emerges-from-aig-shadows-david-reilly.html.

Strigler, GJ 1971, 'The theory of economic regulation', Bell Journal of Economics and Management Science, pp. 2-21.

Walker, RG 1987, ‘Australia’s ASRB: a case study of political activity and regulatory capture’, Accounting and Business Research, vol.17, no. 67, pp. 269-86.

Regulatory capture theory

 

Regulatory capture theory

 by Doris Luya Xiao

dorisluyaxiao at gmail dot com



Capture theory was introduced by George Strigler (1971) that says a firm or an industry can benefit from the legislation if it captures the related regulatory body. In Public interest theory government find some firms or industries have issues that may harm the society. To protect social interest from those harms, government set regulatory body to regulate thebehaviour of those firms and industries. The regulatory body could be officers, legislations or guiding principles. They monitor organizations to act good for the public. Capture theory agrees that regulations are introduced aim to benefit the public at first. But the aim will eventually fail because as time flews regulator are controlled by regulated party (firms or industries), and then regulator will protect the 'regulated party'. Industries are unhappy about being monitored. They could have more benefits or profits without regulation. Those greedy industries will do whatever they can to capture or we could say control the regulatory body. Once industries succeed in controlling, regulators can no longer perform their roles to regulate. Furthermore, regulators being captured will make new decisions in favor of industries rather than the public.
Capture theory was developed while the decline of [[Public interest theory]] during the period of 1967 to 1983(Merrill 1997). Rather than describe the reason to introduce regulation, it emphasis on the development of regulation. In reality there are many cases all around the world support this theory. In Australia the former ARSB was captured by accounting professions; Tobacco industry in China had captured the State Tobacco Monopoly Administration; American had the Federal Reserve Bank of New York captured. In spite of this, the capture theory is not perfect. There are criticisms of this theory.

Illustration of Capture Theory

Structure of theory

Assumption

The regulatory capture theory was build based on following assumptions:
  1. The regulator agency, regulated party and customers are all greedy and seeking to maximise their own interest.
  2. All interest related party have a rational expectation for another party.
  3. It might take a long period of time and huge effort for industries (regulated party) capture the regulator. To get though this theory the impact of cost of capture to efficiency should be ignored.

Arguments

One of the arguments is that the interest of a regulated party was harmed by a regulation; the regulated party want to get its interest back, and then it seeks opportunity to control the regulator. Also regulated party expects that by controlling the regulator, legislating will be in favour of parties subject to regulation. Considering the perspective for the regulator agency, its survival depends on satisfying the expectations of regulated party. If the regulated party does not exist anymore, the regulators are no longer needed.

Conclusion

All of the above concludes that regulators cannot keep their independence; and regulation will eventually lose its basic aim to regulate.

Capture of accounting standard setting in Australia

Background

Before ASRB (Australian Accounting Standards Review Board, later replaced by AASB) was established in 1984, according to Walker (1987), it is the accounting profession who is in charge of accounting standard-setting process. Only members of profession will be sanctioned for non-compliance. That is, accounting profession acts on both regulator and the objective of regulation. At that time, over 40% of company were found fail to comply with the accounting standards. Public confidence in capital market was reduced. ASRB was then established for public good to increase the level of compliance.

Regulatory capture evidence

Here are some evidences on ASRB were captured:
  • While discussing the establishment of ASRB, accounting profession lobbied to ensure that the board would have no independent capability, no academic as chairperson, and would receive administrative officer instead of a research director.
  • In 1985, ASRB update its procedures to ensure priorities would only be set after consultation with AARF (directly controlled by accounting profession). Its priority was previous set on the basis of public submission.
  • The board initially put AARF and other interests group in the same ground. Later, it changed to offer a fast track procedure only for dealing with submission from AARF.
  • Most members of ARSB were professional accountants and financial directors. The regulator lacked independence.

Capture of China cigarettes

The Economist (2014) published an article about the monopoly tobacco industry in china and the government’s control in this area. It seems that tobacco industry have captured the tobacco regulator.
The problem tobacco bring to health have become more aware in global. Below is a table of what World Health Organsation suggests on prevention of tobacco and China's action.
WHO SuggestionChina PerformanceDepartments issue reliable data on tobacco use.China lacks disclosure on tobacco use.Government sweeping imposition of smoking bans.This issue is still on discussion.Government set well-funded accessible scheme to help people quite smoking.Little funds were set in China.Broadcast on the harms of tobacco.Not many people know the harm.Complete ban on marketing.Cigarette brands are seeking chances to survive.Impose high tax on tobacco.Cigarette in China is quite cheap, everyone can afford it.

Obstacles

In fact China agreed that WHO was right on banning cigarette. There are numerous policies on forbidden smoking in public area. First lady of China is the official anti-smoking ambassador. But there are obstacles on dying out smoking in China.
First, the tobacco business and the government are entwined with each other. This relationship prevents the efforts of smoking ban. This could be seen from the above table. The largest part of government revenue is from tobacco industry.
Second, the tobacco industry is almost monopolized by China National Tobacco Corporation. The State Tobacco Monopoly Administration plays the role on monitor. However, these two organisations have intertwined structure and they share managers and use the same website. The situation is that the tobacco industry regulates itself.
It’s clear that there are many ways china could adopt to prevent smoking. But as the regulation setting process is controlled by the Tobacco Co, the law cannot be so persuasive on regulate tobacco in China.

Capture of Federal Reserve Bank of New York

In this case the Federal Reserve Bank of New York (New York Fed) regulate Wall Street banks though the Federal Reserve Banking System. The New York Fed should be independent from the Wall Street banks considering its role as a regulator. However, the president of NY Fed is selected by a board formed with some of the Wall Street banks. Timothy Geithner who was the president of NY Fed from 2003 to 2009 always had a closer relationship with Wall Street while in position (Becker & Morgenson 2009).
During the 2008 financial crisis, Geithner made NY Fed purchase credit default swaps from AIG. In return banks received full value payment. Usually when a company wind up, creditors may be court ordered to accept payment at a discount value, otherwise taxpayers will suffer. Thus the full payment on the AIG debts was unusual; and Geithner argue that this was to save the banks from their own mistakes. He also refused to disclose the hidden parties benefit from this activity (Reilly 2010).

Criticisms of capture theory

According to Posner (1974) this theory has some weakness in its theoretical foundation. There are questions cannot be answered. Though the theory describes that the deal between regulatory agency and the regulated party affect regulatory process, it does not suggest what process the regulated party did to capture the regulator. Customer’s interest will also be affected by the new set up rules. The theory did not explain why customers cannot capture the regulatory agency to protect their interest. Now that the regulated party have the ability to capture the regulator, why don't they prevent the creation of regulatory agency in the first place?

Reference

‘Government coughers’ 2014, The Economist, 1 March, viewed 1 April 2014, http://www.economist.com/news/china/21597958-smoking-course-kill-100m-chinese-people-century-will-latest-anti-smoking.

Becker, J & Morgenson 2009, ‘Geithner, member and overseer of financial club’, The New York Times, 26 April, viewed 7 April 2014, http://www.nytimes.com/2009/04/27/business/27geithner.html?_r=0.

Merrill, TW 1997, ‘Capture theory and the courts: 1967-1983’, Chicago-Kent Law Review, vol. 72, viewed 1 April 2014, http://scholarship.kentlaw.iit.edu/cklawreview/vol72/iss4/6.

Peltzman, S 1976, 'Toward a more general theory of regulation', Journal of Law & Economics, vol. 19, no. 2, pp. 211-240, viewed 1 April 2014, http://www.nber.org/papers/w0133.

Posner, RA 1974, 'Theories of economic regulation', Bell Journal Of Economics & Management Science, vol. 5, no. 2, p. 335, viewed 1 April 2014, http://www.nber.org/papers/w0041.

Reilly, D 2010, ‘Secret banking cabal emerges from AIG shadows’, Bloomberg, 29 Jane, viewed 7 April 2014, http://www.bloomberg.com/news/2010-01-28/secret-banking-cabal-emerges-from-aig-shadows-david-reilly.html.

Strigler, GJ 1971, 'The theory of economic regulation', Bell Journal of Economics and Management Science, pp. 2-21.

Walker, RG 1987, ‘Australia’s ASRB: a case study of political activity and regulatory capture’, Accounting and Business Research, vol.17, no. 67, pp. 269-86.

Why I doubt my economics training

 

Why I doubt my economics training.

The nice thing about Economics is that it gives us simple explanations about the world which are natural truths about human, thus we can use the conclusions drawn as axioms to guide our everyday life on what behaviour is good and evil.

Ok: now swap "economics" for "religion" and read the sentence again.

My alma mater was the School of Economics at the Australian National University.   The ANU is one of the most staunchly neoclassical schools in all Australia. Obsessed with markets, marginalism, and mathematics, the school was supposedly one of the very toughest in the land. I was not the very best student, but I did drink the Kool Aid. 

More recently my understanding has become more nuanced, not just because of the shift in public attitude largely driven by the global financial crisis. no longer can I believe that is possible the loan optimal to follow the path of ubiquitous unfettered markets as idealised by libertarians. But economists are asking the right questions, mostly. 

Although I do not agree with the recommendations set by Pickette, his work is certainly nuanced, will supported by evidence and is not set ideal logically opposed to the Say or Jevons. Rather, he accepts the vast majority of the orthodoxy, and proposes a critical way of thinking about the problems. The problem is that this critical approach was missing from an otherwise stellar education at the ANU. 

The use of mathematics and algebra is in fact a constructed for the indoctrination of potentially powerful individuals. By simplifying out all the problems, we are able to come up with simple models that contain one one, or a perhaps a few of variables, which will ultimately determine the outcome.

But the real world is not like this.

Much like in physics class, students will study aerodynamics, Newtonian physics, fluid dynamics, friction, etc, and typically study these in isolation. Usually a problem starts with a scenario such as"a ball is rolling down a hill", commonly followed by a long list of assumptions to isolate out any unwanted effects, "assume that there is no friction, air resistance, and that the ball is perfectly round". 

The real-world engineer will understand the physics, but will have to take account of the all the things that have been assumed away. So it is with economics and business.

The problem is, when a physicist is applied to a particularly difficult engineering problem, they will tend to accept the operating environment, and adapt their apparatus accordingly. The Economist on the other hand is more likely to attempt to change the environment or blame other exogenous variables. Physicist do not hold on to their Newtonian way of thinking when it fails to explain the pre-ambulation of mercury around the sun. The answer is, "the model does not explain the behaviour". This spurred on Einstein to develop his theories, and we now have Lagrangian mechanics, which is a re-formulation of classical mechanics. 

Basically, scientists went looking for a more complex models that closer match reality rather than trying to change reality to match the model. Economists usually don't do this.

The antidote is "we need to imagine people more complexly", as championed by John Green of crash course. Conversely, I am concerned that the default assumption that "everything is complex" would also lead people to give up on trying to understand. "Complexity" isn't an excuse for giving up.

So therefore it is very useful to start off with the simplicity of powerful models, but insufficient to accept them at face value. We must be able to relax the strict assumptions, and allow for multiple models each having their own effect simultaneously. Much like the ball rolling down the hill, gravitational forces might be the main driver, but air resistance and surface imperfections do exist, and do play their part. 

So yes, we need to imaginable more complexly, and the complexity of algebra does not make up for the lack of imagination in accepting which variables might be playing their part. 

I believe that we can go a lot further in teaching our students to think critically at the undergraduate level.