Back in the Middle Ages, no-one took any notice of Copernicus when he said the Earth was not at the centre of the universe.

Stewart Wallis, executive director of London-based “think-and-do-tank” the New Economics Foundation and one of the thousands attending the World Economic Forum in Davos, can sympathise.

“I don’t mind being called an idealistic idiot,” he told Reuters, with reference to a philosophy he summed up as “the macro-economic text-books are works of fiction”.

Undaunted by the non-believers, he will continue to spread the word and in Davos addressed the assembled money-makers on the importance of “gross domestic happiness”, as opposed to gross domestic product.
His new economics aspire to demonstrate “real economic well-being” through sustainable living, a focus on the local, not the global, and a more equal distribution of wealth.

The foundation’s latest survey of National Accounts of Well-being, based on around 40,000 interviews across Europe, found overworked, tired, bored and lonely Britons were near the bottom of the league.
Increasingly, they might be ready to give new economics a try. To that extent, Wallis’ time has come.

But there is work to be done. Regardless of the world economic crisis, convincing the people of Davos, both visiting and permanent, of the need to jettison old economics remains a challenge. The Swiss in general come very near the top of the well-being league, with their perfectly groomed ski pistes, quantities of chocolate and discreet wealth.

How do you keep VIPs — hundreds of them — happy?

You can’t, especially at the World Economic Forum. There’s no point in pulling that “Don’t you know who I am?” line here at the annual Davos gathering, which is attended by hundreds of the biggest corporate and political bigwigs.

Aides to Pakistan’s Prime Minister Yousaf Raza Gilani (including Commerce Minister Makhdoom Amin Fahim) and officials traveling with Kazakh President Nursultan Nazarbayev were visibly upset after they were refused entry into the opening plenary session. Before the same event, Senegal’s president Abdoulaye Wade and his aides were made to stand around for 15 minutes or so.

Later in the week, Belgium’s prime minister, Herman van Rompuy, was pushed aside by bodyguards to make way for British Prime Minister Gordon Brown.

Every morning, there are long queues at the security screening on the way into the conference, and CEOs who are used to whizzing past barriers must wait patiently for their turn like the rest of us.

“The forum has outgrown this place,” one participant told Reuters.

Many of the bankers blamed for the world financial crisis have been conspicuous by their absence from this year’s World Economic Forum in Davos.

They haven’t just missed conventional debate on how to prevent a re-run. They’ve also skipped the chance to hear Richard Olivier, theatre director and son of acting legend Laurence Olivier, draw comparisons between the masters of the universe and Shakespeare’s murderous tragic hero Macbeth.

“Macbeth didn’t set out to be evil,” Olivier told Reuters. On the face of it, he was the kind of bright, ambitious young man who could be trusted with big investment decisions. Equally, Lady Macbeth, who stands for “the familial culture of an organisation” thought she was just nurturing his career.

The positive role model is the low-key Malcolm, who, after all the bloodshed, quietly and without ego, ushers in a new order at the end of the play.

Olivier’s sessions in the Swiss ski resort have also focused on sustainability, with the help of Shakespeare’s comedy “As You Like It,” which distinguishes between the oppressive world of the court and the creative, collaborative forest.

“People cut off from nature will make unnatural decisions,” is the message it holds for the chastened business elite, says Olivier, whose company Olivier Mythodrama gives Shakespearean lessons in business leadership the world over.

He is suitably modest about audience reaction, but his wife Shelley Olivier says he receives ovations that would have made his father proud.

Business and political leaders congregating in the ski resort of Davos took a break from rosti, raclette and other Swiss cuisine as Japanese clothing maker Uniqlo sponsored a Japanese lunch and gave the conference hall a Tokyo-style makeover.

The six-course lunch, packed neatly in a black bento box, contained: seafood and vegetable tempura, Japanese vegetables, asparagus with beef, tofu with miso, shrimp, tuna, Japanese omelet, sushi topped with fish and grilled marinated salmon.

Participants later snapped up Uniqlo’s “manga” pop culture T-shirts handed out for free, while Japanese Prime Minister Taro Aso — here on an 8-hour trip — enjoyed a photo-op with an exhibition of T-shirts with embedded video footage of modern works by Japanese artists.

“Confidence grows at the rate that a coconut tree grows, but confidence falls at the rate that the coconut falls,” Montek Singh Ahluwalia, deputy chairman of India’s Planning Commission, told a panel in Davos.

He also indicated that India’s decision not to float its currency and to build up massive reserves was correct, noting that this gave it a cushion during the downturn.

“Floating (currencies) would be fine, if that was what was meant, but what they mean by floating is crashing upwards and crashing downwards.”

John Lipsky of the IMF said the answer was a better international liquidity facility to give surplus producing nations the confidence that cash would be there if they did float and were hit by volatility.

He’s right though it would have to be a very big fund indeed. But if the lesson of the last five years is that everyone should export like heck and build up reserves we are going to have a battle on our hands and a long, deep downturn.

James Saft is a Reuters columnist. The opinions expressed are his own.

Robert Shiller, the Yale economics professor who identified the housing bubble early, scents a profound change at Davos this year.

 ”There seems to be a paradigm shift underway in our thinking about the economy. I was surprised to see how similar other people’s thinking was to my own,” he said.

 ”The efficient markets theory really is not going to sell any more. You think about teaching an MBA class and talking with unhedged praise about the efficient markets theory you’d be in trouble. The students just wouldn’t accept it.”

Shiller has long argued that markets are susceptible to bubbles, in part because the psychology of rising markets becomes embedded in people’s thinking, prompting them to pour more cash into rising assets irrationally and without regard to their fundamental ability to generate cash or other value.

“Markets aren’t efficient and we are vulnerable to bubbles.” The new paradigm “kind of puts us back to a somewhat earlier stage of capitalism. We are not abandoning capitalism but we are acknowledging its imperfections. There will be a bigger role for government.”

On U.S. housing, Shiller notes that research he does on attitudes towards house prices still showed long term optimism about prices last July.

“I bet we might see some more significant drops (in optimism) when we do our next survey in several months.”

Shiller’s work on long run house prices showed that in the U.S. they stayed comparatively flat for the 100 years to 1990 in real terms, before soaring. We are now more than half way back to that long run level.

He doesn’t make house price predictions, so I’ll have to. An overshoot is not out of the question and if it comes will make whatever bank insurance schemes now being born an irrelevance.

An eminent scientist who studies the brain and economics thinks that the financial industry in essence became addicted and insensitive to both risk and reward.

“The finance industry was adapting to the level or risk,” said Gregory Berns a professor at Emory University in Atlanta and a leader in the relatively new field of neuroeconomics.

“It is an insidious process, and you are not aware of it. You are addicted to returns, you are addicted to risk, you are addicted to cocaine - its all the same as far the brain goes.”

The part of the brain which is rich in dopamine is active in giving people a buzz when they do something they value. Getting money can give this buzz, as can taking risks. But sadly shortly after we reach a level of wealth we need more to get the same kick, just as we become used to the risk taking which formerly would have been exciting and might have caused us to trim our sails.

Berns describes the process of becoming habituated as like adjusting to a new level of light, at first it seems bright but then you adjust.

“You get used to it. The brain is constantly gauging relative amounts. The brain does not have a mechanism ever to be satisfied.”

The implication he said, is that the trader, banker or even small investor needs some structure from outside to impose limits.

In other words, regulation from on high.

And of course regulating banks to take the “right” amount of risk, enough to keep money flowing, is much more difficult than just telling them not to drink at all.

It’s as if governments were going to hold support meetings for alcoholics in bars, with the object being to just have one quick one.

A tough task.

Watch interviews with top business and world leaders including the following:

• Abdullah Al-badri
• Jose Gabrielli
• Donald Kaberuka
• Eric Anderson
• Carl Bildt
• Sue Gardner
• Kevin Kelly
• Rick Goings

Blackstone Group chairman Steve Schwarzman’s campaign against the evils of fair value accounting continued at a lunch hosted by Credit Suisse today.

He condemned fair value accounting as a “pro-cyclical” concept that “makes no sense”.

“All that matters [in private equity deals] is when you buy and when you sell – at least that was all that mattered before someone came up with fair value accounting,” he said.

He even claimed that Robert Rubin, former US secretary of the treasury and more recently chairman of Citigroup, had turned against fair value accounting, despite being a long-term advocate. Rubin had faxed him apparently (Schwarzman admitted to being a “technical Neanderthal” who doesn’t use a Blackberry) to declare his change of heart.

Warming to his theme and to illustrate his point, he says Blackstone analysed earlier deals to see how they would have fared in the last downturn (2001–2003) if Blackstone had been forced to use fair value accounting.

At the lowest point, he said, the firm’s deals would have lost 70% of their value. “But when we sold those companies, investors made 2.3 times their equity.”

Those investors worrying about more recent deals would have been relieved to hear that none of Blackstone’s companies have refinancings for four years and 60% don’t even have any banking covenants. If only those pesky accountants from the FASB will leave him alone, Schwarzman will no doubt do it again.

Climate change — and the need for governments to reach a deal in Copenhagen on limiting climate-changing emissions — has been one of the central themes of this year’s World Economic Forum in Davos.

And despite concerns that the economic crisis could push climate change down the agenda, businesses are salivating at the opportunities offered by going green.

Previously sceptical politicians and NGOs welcome business’s enthusiasm.

“Quite a lot of business has got it, and really understands that this has got to happen and are talking about really innovative things,” Barbara Stocking, CEO of Oxfam.

“If they’re that almost enthusiastic about making the changes then that makes me feel rather better than I did,” she told Reuters.

What do you think? Does business get it?