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Where Are the Economists?
So the markets tumble again. Forgive me for asking, but where are the economists? As the world approaches recession, an entire profession seems to have vanished into the mist, like conmen stuffed with cash and thousands left destitute behind. They said recessions were over. They told politicians to leave things to them and all would be fine. Yet they failed to spot the sub-prime housing crash, and now look at the mess.
When I studied economics we were told we would be masters of the universe. Ours was not a dismal but a noble science. It had harnessed the verities of maths to those of human behaviour and would go on to conquer politics. Rampant recession would go the way of hyper-inflation. Like leprosy and cholera they were epidemics that modern medicine had rid from our shores.
It did not matter if the economists were welfare Keynesians such as Myrdal, Robinson and Galbraith or free-marketeers such as Marshall, Friedman and the Institute for Economic Affairs. All were "social scientists". They claimed to have cracked the DNA of economic exchange, to have turned the base metal of money into political gold.
We believed them. We believed the Keynesians until they slumped into stagflation. We then believed light-regulation capitalists such as Ronald Reagan and Margaret Thatcher, that they could convert boom-bust into an upward sloping plane of glory. We believed the central banks when they said that, in their hands, inflation was dead and prosperity eternal. Bliss it was that dawn to be alive -- and an economist.
If we were now in the grip of bubonic plague, there would be all hell to pay from some profession or other. Politicians would summon public health officials and subject them to third degree. Why no national rat strategy? Why no crash inoculation? Why so many planning delays on plague pits?
The espionage pundits were likewise castigated for wrongly leading the nation to war against Iraq, for giving dud professional assessments on fallacious intelligence. The architectural profession has taken the rap (very occasionally) for the grotesque failures of public housing in the 1970s. Climate scientists may yet be damned for the costly lunacy of new energy sources, such as wind turbines and biofuels.
Yet economics is a Teflon profession. A quarter of a century ago 364 practitioners wrote a letter denouncing the policies of the then Thatcher government as "have no basis in economic theory." They were wrong in fact and wrong in judgment. Thatcher's policies laid the groundwork for a strategic shift in the underpinning of British prosperity. There was no inquiry, no hearing, no peep of retraction or remorse.
Since then economists have flooded into government. What do they all do? Economic managers have always claimed credit for past successes. They have espoused quantifiable outputs, targets, and delivery indicators. They invented the celebrity consultant and the maxim that only what measures matters.
Today we are older and wiser. Controlling the agencies of credit has proved beyond the finest professional minds in the game. Where now the gilded ones of Moody's and Standard and Poor's, credit raters to the mightiest in the land? They should have stuck to goose entrails.
America's former Federal Reserve Board chief and Brown adviser, Alan Greenspan, is unrepentant. He recently declared simply that "anticipating the next financial malfunction... has not proved feasible." His blind faith in markets and competition is undimmed. There is nothing so unseeing as a wronged economist. The Bank of England's apologias over Northern Rock have been protests that regulation is a mess and government indecisive.
When muck hits fan, economists always blame politicians. They would have some justice if they did not take credit when things go right. I was always uncomfortable at the overselling of economics as a science, when it is rather a branch of psychology, a study of the peculiarities of human nature. Its spurious objectivity, manifest in its ridiculous love affair with maths, induced a "Jupiter complex", a conviction that scientific certainty applied with enough rigour to any problem triumphs over all.
Economic management is and always will be about politics, about the clash of needs and demands resolved through the constitutional process. The newest craze is "nudge" economics, from the Americans, Richard Thaler and Cass Sunstein. They put the subject firmly among the behavioural sciences -- if not the arts. Human actions are too mysterious and unpredictable to be liable to quantification and modelling. They are responsive to what the academic, Paul Ormerod, once called "butterfly economics". Nudge steers but does not order or plan.
This requires knowledge of the working of markets, incentives, expectations and panics. But converting micro-economics into macro has always been a dangerous game. Much has been made of the success of Spain's dirigiste banking regulators in putting security before runaway profit, and thus guarding its finances from shock. But this was a triumph of politics over economics. Greenspan may laconically remark that "we can never have a perfect model of risk," but we can have alertness to risk and we can have caution.
Economics has long traded on being a science when it is not. In this it is like war. Now it has met its Waterloo and a little humility would be in order. Once again economics must be rescued by that true master of all things, politics.
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The joke among physicists is:
"What's the easiest way to get a Nobel Prize?"
"Take a standard technique from a sophomore engineering math course, and apply it to economics"
Gramm is an economics teacher. he is obviously a purveyor of the Milton Friedman school of economics that ultimately spells out more by deeds & actions (the true measure of any concept) then by words the philosophy of allowing a society to be run more by privatized entities then by government except Police state and military rule. Also, by actions, as what could be seen in Chile under Pinochet, which says it's okay to kill and torture thousands, spy on your citizens, and throw major fundamental principles of the Constitution out the window. Just read Naomi Klein's "Shock Doctrine." (It should be required reading for Government & History courses.)
What we have now, since Bush took his "mandate" synonymous with his war on terror, is a police state. It actually began with Reagan, who was also a strong believer in this system. But Bush has brought it front and center to the fore.
With all this in my mind, when I hear Gramm say we are a bunch of whiners, I easily can imagine him standing over a torture rack, telling an American citizen he wants information from over the detriment of dollars for a corporation: "Stop whining.... We're doing this for your own good."
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The Dismal "Science"
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The economists of today didn't know Milton Friedman was a quack and they studied and implemented his quack theories with a vengence against the will of the people. Our economics courses were filled with Friedman quack theories breeding thousands of quack clones....now when the economic quacking ducks cross the road they should be run over by the people never to be heard from again.
Yah, except the University of Chicago is taking the Theological Seminary Building and providing $100M to turn it into the "Milton Friedman Institute of Economics."
The sick irony of that is twofold.
First, they're devoting an institute to a modern-day Torquemada.
Second, they're asking for DONATIONS to top up the $100M they're GIVING to it -- seems to me they should let the FREE MARKET determine whether it lives or dies, if he was so bloody right about everything.
Maybe they should have a bake sale.
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What delerious logic.
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"They said" this, "They said" that.
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Nonsense.
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Economics "has met its Waterloo"?
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Nonsense.
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Psychology it is and frail egos are at the helm. Greenspan became an all knowing god from Washington to London. Did anyone ever dare question him? We can all recall his one sided presentations to the Senate with baffled stares blinking back at him. Is anyone daring to question him now? Not much.
The best point of this article is that economists are never run through the grinder of any investigation. Economics is not a science, and neither is common sense but there appears to be a dearth of it as much as there is a lack of real intelligence on the economic front.
Meanwhile the Fed continues to rule, ... unconstrained.
"I was always uncomfortable at the overselling of economics as a science."
"Economics has long traded on being a science when it is not."
Economic study remains the realm of colleges of "social sciences" or "liberal arts" for universities to this day. When I proposed to my economics 101 professor that the "Law of Supply and Demand" was not a "real" scientific law, one based on the mathematical proposition that for a real mathematical function it's inverse function would also be valid (Simply put: If F(y) = x is real over a specified range then F-1(x) = y must also be real for the same range), I met complete silence other than for a very memorable and indelible repose: "huh"?
It was then that I realized the farce: an economics professor that didn't recognize the mathematical concept of "supply-side" economics as a proof invalidating the "Law of Supply and Demand".
The two economists I know personally are a fabulous mathematician and a chemist by training. Neither would care much about a liberal arts approach to economics. They know how to the math part right.
Your assumption that the "law of supply and demand" is a scientific law is nonsense, of course. It is simply a model that has a limited range of uses. It is being taught to people as an easy (and low tech) approach of economics that does not require anything else than high school math. Real economics requires a lot more than that.
Your assumption that every scientific law has "an inverse" (whatever that is supposed to mean) is also without any support. Please look into thermodynamics, statistical mechanics, quantum theory and general relativity to see examples of dynamics which can not be universally be reversed. And not even the time evolution of a simple classical pendulum can be inverted. There is no way to distinguish one cycle of a frictionless periodic system from another.
Supply, demand and price in the real world are not even functions. They are, in a much better approximation of reality, distributions. And that isn't true, either, because in reality economic events are non-repeatable events which are not part of a well defined ensemble. Unlike an ideal gas expansion experiment, the economy of the US in the 1980s can not be repeated.
"Real economics requires a lot more than that."
http://en.wikipedia.org/wiki/Long-Term_Capital_Management
The fundamentals of economics do not require sophisticated math. Economists with exaggerated egos try to beat the market with fanatical mathematical propositions. But this has nothing to do with, after all, what turns out to be common sense bolstered by empiracle evidence. I once took a class entitled the "economics of crime". This, of course, had a lot of statistics, the issue recidivism. Crops, after all, do much better with adequate rainfall. Take Greenspan... he popped the irrational exuberance of the dot com bubble but he also staged the field for the subprime mortgage failure. Do you think the former was good math and the latter bad math?
Non repeatable, exactly and the curves drawn on the blackboard by the professors are chimeras, objects of desire, because the reality is just a point.
People are not "unemployed" - the great bug a boo of the classical economists (how could there be unemployment in a perfect system, they would ask) - because the unemployed are employed in the job of finding employment unless they don't want employment in which case they are not "unemployed". the fact that they are paid zero for the job of seeking employment is inconsequential.
And yet we are supposed to think that these "unemployment" figures are "scientific" variables subject to manipulation by the geniuses in the Universities who drone on and on about it.
I'm happy to see others giving Economics the caning it deserves.
Clearly, you missed the point. During the 1980s, "supply-siders" described the functionality of price curves from the inverse view of the "demand-side" Keynesians utilizing the so-called "Law of Supply and Demand". Increase the amount of goods and prices will drop, so they reasoned.
An argument of which variable was the dependent and which was the independent, an inverse relationship of f(x) = y and f-1(y) = x, for the "Law of Supply and Demand". An insight that my professor failed to comprehend but other students quickly grasped.
"Your assumption that every scientific law has "an inverse," were your words, not mine. My argument was purely mathematical: if two functions exist, are real, and the inverse of one another, then f(x) = y and f-1(y) = x.
Economics remains a field of study frequently taught at a college or branch of a university known as "Liberal Arts". That is: academic disciplines, such as languages, literature, history, philosophy, and social science, that provide information of general cultural concern. It was neither a partisan attack nor demeaning comment.
As a student of Veblen, Keynes, and Galbraith, I remain skeptical of economic models being too reliant on imperfect relationships in explaining and predicting long-term behavior of societies. Especially when those models are prone to frequent failure. Afterall, it's a social science, not science per se. My experience of everyday economists is they cannot perform but the most elementary mathematical computations. Thus, Mr. Jenkins' post was most apropos.
Greedy, and did you know that if you run right down to your local Prius dealer today, that they'll throw in a free hair shirt just like the one ktm wears?
"You talkin' to me? You talkin' to me? You talkin' to me? Then who the hell else are you talkin' to? You talkin' to me? Well I'm the only one here. Who the ... do you think you're talking to?"
I love that movie. Don't you?
LOL RL. KTM should be ecstatic with Toyota's Prius announcement today. Toyota announced they will be moving production (%?) of the Prius to the US. Perhaps with all his expertise, he could take over design responsibility for the Camry hybrid program. Their lead engineer recently dropped dead at the age of 45 from being overworked.
Umm, quite a few economists saw the mess we are in coming years ago, problem is those economists who did see it were in the minority and by and large ignored.
This is true. Friedmanism has pretty much become an orthodoxy in the US
Happens to a lot of people. The phenomenon was so wide spread, even in antiquity, that the Greeks devoted a mythological figure to it. They called her Cassandra. Cassy has been around a lot since then. In the 20th century Americans patented the advanced system of screwing oneself by ignoring dire long term predictions for short term gains. The patent is known to be fool proof and is the only one that will never expire.
Great piece...
The oddest omission in current economic thinking is the general ignoring of huge swaths of waste in the "political economy" as economics used to be called. The defence budget in the USA has expanded from $250 billion under Clinton to three times that amount under Bush. Look at the 2 trillions dollar medical industry in the USA: It is rife with "book-keeping" fat on the order of 500 billions dollars. I include the insurance companies and their counterparts in the doctors' offices who outnumber the doctor and his nurses who actually deliver medical care. Finally look at the waste of energy. Don't get me started.
All in all there must be at least 1.5 to 2 trillion dollars in utter waste that could be put to use making us all healthy, wealthy and wise and yet nobody talks about it.
We don't have any enemies. We dont need to spend 750 billion dollars on defence. Has the medical industry heard about something called the internet? We don't need to spend 500 billion on accounting. And there is huge waste on energy. Huge. Where are the economists?
What does government spending have to do with economics? You are correct about the waste but it is based on failed politics, mostly because value voters voted against killing fetuses and instead helped a generation of war mongers into power.
Are you only good for pointing and casting blame, or is there Anything in this world for which you take responsibility? Because all we hear from you is, It's the voters, the Suv drivers, the ignorant, the stupid, the greedy citizens; you know, those Other guys!
For an immigrant who claims a passing knowledge of Socialism (which implies your country of origin must have been the GDR, in which case you may know about totalitarianism, but nothing about true Socialism) you never miss the opportunity to rip America, Americans, and our struggling experiment in Democracy.
In your world it seems that even Washington, Jefferson and all the other Founders would have been better served had they remained British slaves rather than try something new; because, after all, what were their credentials for such an undertaking, especially given that it had never been done before? Where were their Phd's in Republic building? I guess they were just a bunch of donuts, huh?
What classic close minded, Eurocentric, cultural stereotyping clap trap! You look for the worst here--and you make sure that you find it. Then you jump up and down, and clap your hands at the pain the People endure. Meanwhile, you and your dinner table friends haven't solved one damn thing.
You'd do well to remember where you are right now, and become part of the solution rather than continuing to add to the problem. Gloating over the misfortunes of others is bad form in any civilized country.
These big investment banks are turning the stock market into a game of manipulation with smaller investors. Wealthy people readily admit that money is a game to them now. For large amounts of the population money is the difference between life and death, but for these folks, it's a contest of bragging rights and pride.
Corporations cannot keep trying to increase revenues( pulling more money mostly from consumers) and beating down wages and costs and not have these vicious business cycles.
You have the U.S. Treasury and the Federal Reserve trying to flatten out the business cycle and Corporate America creating wild swings in the business cycle. Speculators love fluctuations in the market, bcause they can make a quick profit there, as opposed to long term investors who are mostly happy with a reasonable return on their investment.
Economics is not a science because there are too many variables. Ponzi schemes operate psychologically, not by the "laws" of supply and demand. Albert Einstein wrote on economics in the Thirties saying that economics is not a science, there are too many variables and that another Great Depression would result from the "cooking the books" culture of corruption.
Thieves don't concern themselves with the economics of their crimes. It is foolish to believe that there is a free market. There are monopolies and cartels. There is corporate welfare and corporate socialism. Why would people with vast amounts of money at stake leave anything to chance that they couldn't control such as the rules themselves or those whose job it is to enforce the rules? Out of honesty?
The idea that capitalism makes people more free, for example, is a political statement, not an economic proposition.
Thatcher and Reagan used the ideas of Milton Friedman and Hayek as capitalist manifestos, using free trade as a weapon against third world countries for resources, and against the middle and lower classes in America. The proof is in the vast transfer of wealth and falling real wages. Simple math.
Bottom line is that the present system is failing for lack of regulation, oversight, and transparency. We are in a recession and headed for the worst times since the Great Depression as we outsource more jobs to China and India. Where is our real economy?
Out, please see GOP's post, above, or Libertynot negotiable, below. As Twain said--"There are lies, damned eyes, and statistics!" If he were alive today I'm sure he'd put economics at the head of that list! Some guys come close, like Galbraith, who was without peer when it came to his observation of the Human Condition. In other words. he was a sociologist who based his economic ideas in reality. Greedy turned me on to some of his works and they are enlightening. Not always 100% correct, but better than any of the guys we have today.
Take Larry Kudlow, for example, who spouts the benefits of Reaganomics whatever the season, and yet is unable to critique what happens when deregulation runs amuck and sheer criminality takes over.
And how fitting that theories which don't seem to hold up further than 2 miles from the U. of Chicago are on a pedestal among the seven wonders of the modern world!
Larry Kudlow will shortly be calling for a socialist bail out of Fannie Mae and Freddie Mac, the guarantors of mortgages and thus Wall Street's wealth, while insisting that the individual needs to take responsibillity for his actions when it comes to people who can't afford to pay off their mortgage.
Of course nobody will make the slightest comment. At least no untill somebody like Nancy Pelosi suggests that lower income people get a break on mortgages at which point Larry Kudlow will lead the charge to evict said miscreant from his home and throw his children and grandmother on the street.
Welcom to "capitalism", American style.
Where are the economists? If they're not acting as bagmen and schills for the elite they're probably stocking shelves at WalMart. Besides, we don't really need a heart surgeon to deal with a wart on a toe.
Our government has conspired with the wealthy elite of this country to transfer jobs to third world countries to be done by child, slave, and prison labor at a fraction of the cost of an American worker; they have radically cut-back on taxes paid by the elite and transferred the tax burden to the working people; they have imported millions of technical workers from third world countries to take even more
American jobs. More labor chasing jobs = lower wages, benefits, working conditions, bye-bye medicare and social security.
The government is creating a slave class in the U.S., intentionally crushing down working people to a non-asset-owning subsidence level where they will take any job, any wage they can, live poorly and without healthcare, eat cheap poisoned food, die young. We don't need no stinkin PhDs to tell us what's going on.
Stop the imports, stop immigration, re-build our factories, farms, make and sell locally, stop structuring our country for the benefit of the elite who dream of monopolizing the world's economy. It's just that simple.
I guess you don't read Krugman.
He said, many years ago, that almost real economists take trickle down seriously.
He warned about bubbles, GOP tax scams, Bush, destruction of Fed govt. oversights of financial markets, etc, etc.
The Corporate Media, with the notable exception of the NY Times Opinion page, castigated Mr. Krugman, his views, and everyone else who agreed with him.
Now Corporate Media is ignoring him because he embarrasses them by being right.
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