Economist Clowns
Should economists be taken seriously ?
Medieval kings employed court jesters to cheer them up when things (wars, taxes, serfs) went pear-shaped. Today banks, governments, think-tanks use economists to tell us what we ought to think. When things go wrong (the dreaded depression, for example), they bring in the economist clowns. Not quite spin doctors, but close. Court jesters were famous for their incessant laughter. Economists are notorious for their endless monologues. Is their chatter of any consequence ?
What do you make of this: "Reserve Bank lifts interest rates ... economists say it won’t change outlook ... business opinion gloomy ... uncertainty caused by (fill in any recent disaster) .. economic growth slows to (fill in any number) ... nervous about (fill in ‘inflation’, ‘labour costs’, etc)" ? Then, on the same page, read about ‘bumper profits’, ‘price rises’, ‘increased turnover’. What does it tell you ?
These days everyone has their own economist – the employers’ federation, trade unions, certainly all the banks (they have several like Junior, Senior, Chief Economists), and even the Vatican has them. "Thats why the Pope is so rich" you might think . No. Its not because of the economists, its in spite of them. Anyway, as all these guys spin their yarn, they keep contradicting each other. And they don’t even notice. Or if they do, they fall back on the old trick of "on the one hand, on the other".
You might think that these experts anticipate bad economic developments and warn us. But no. Not one of the many market crashes, depressions, financial crises since 1837 has been predicted by them (to my knowledge). They do make forecasts, but these are so bad that J K Galbraith (an economist himself) ridicules his colleagues: "[they] do not know and they don’t know that they don’t know". As a consequence, they get it half right half the time – an error rate worse than the weather forecast. Try this on the next economist you meet: "Will interest rates go up in the next quarter?" You’ll get an avalanche of words and somehow he’ll end up telling you all about Chinese bicycle factories.
Talking about the one hand or the other, why are economists harping on about the ‘invisible hand’, the ‘magic of the market’, the ideal supply and demand curve, when reality tells us a completely different story ? If they would just look out the window and show me one instance of a perfect market (except the weekend village market). From agricultural products, to oil or any other commodity, to pharmaceuticals, to so-called intellectual property (eg. junk DNA), almost everything is owned, regulated or ‘protected’ by governments, multi-national corporations, cartels, ‘free trade’ bodies (for more click ‘Free Trade’ - one of my favourites - due out in Feb '06) and bi-/multi-lateral agreements. But I am getting carried away.
Back to Adam Smith. He is one of the few economists I respect. The other is Karl Marx. Both started out as philosophers and critical analysts of the society in which they lived. Hence, their discipline was ‘Political Economics’, a distinction that was later lost. And yet, to me it is the only acceptable way of looking at economics. Because economy does not exist in empty space. It is subject to, and a product of, its political environment. After all, up to half the economic product (GNP) in most countries is consumed by government. And by the way, most wars are being fought for economic reasons. To ignore this is to close your eyes and refuse to accept reality. If its not ignorance, then its intellectual dishonesty.
The ‘ruling class’ or, less emotional, the political-economic environment determines what happens to us economically. Wages are a good example. They don’t just go up and down like the temperature. Their behaviour was different during the Industrial Revolution, after trade unions had been formed, and now with outsourcing and ‘Globalisation’ (another favourite of mine – due out March ’06). To talk about wages in a clinical, economic-modelling type environment is ludicrous. But economists keep playing with slick mathematical models that try to emulate the real world. And they get annoyed when the world refuses to behave as their models say it should.
Here is my list of grudges/complaints about the economist clowns:
So far this has been about the clowns. But there is another, more sinister type of economists - those who prostitute themselves to organisations with hidden agendas. This is when they become pimps And thats where they do real damage to the rest of us.
Economists like to say: "Trust me, I am an economist". There are two reactions to this: If he is a clown, laugh. If he is a pimp, run.
PS: Even economists can contribute something – like - improving the World , even if only ceteris paribus.
Medieval kings employed court jesters to cheer them up when things (wars, taxes, serfs) went pear-shaped. Today banks, governments, think-tanks use economists to tell us what we ought to think. When things go wrong (the dreaded depression, for example), they bring in the economist clowns. Not quite spin doctors, but close. Court jesters were famous for their incessant laughter. Economists are notorious for their endless monologues. Is their chatter of any consequence ?
What do you make of this: "Reserve Bank lifts interest rates ... economists say it won’t change outlook ... business opinion gloomy ... uncertainty caused by (fill in any recent disaster) .. economic growth slows to (fill in any number) ... nervous about (fill in ‘inflation’, ‘labour costs’, etc)" ? Then, on the same page, read about ‘bumper profits’, ‘price rises’, ‘increased turnover’. What does it tell you ?
These days everyone has their own economist – the employers’ federation, trade unions, certainly all the banks (they have several like Junior, Senior, Chief Economists), and even the Vatican has them. "Thats why the Pope is so rich" you might think . No. Its not because of the economists, its in spite of them. Anyway, as all these guys spin their yarn, they keep contradicting each other. And they don’t even notice. Or if they do, they fall back on the old trick of "on the one hand, on the other".
You might think that these experts anticipate bad economic developments and warn us. But no. Not one of the many market crashes, depressions, financial crises since 1837 has been predicted by them (to my knowledge). They do make forecasts, but these are so bad that J K Galbraith (an economist himself) ridicules his colleagues: "[they] do not know and they don’t know that they don’t know". As a consequence, they get it half right half the time – an error rate worse than the weather forecast. Try this on the next economist you meet: "Will interest rates go up in the next quarter?" You’ll get an avalanche of words and somehow he’ll end up telling you all about Chinese bicycle factories.
Talking about the one hand or the other, why are economists harping on about the ‘invisible hand’, the ‘magic of the market’, the ideal supply and demand curve, when reality tells us a completely different story ? If they would just look out the window and show me one instance of a perfect market (except the weekend village market). From agricultural products, to oil or any other commodity, to pharmaceuticals, to so-called intellectual property (eg. junk DNA), almost everything is owned, regulated or ‘protected’ by governments, multi-national corporations, cartels, ‘free trade’ bodies (for more click ‘Free Trade’ - one of my favourites - due out in Feb '06) and bi-/multi-lateral agreements. But I am getting carried away.
Back to Adam Smith. He is one of the few economists I respect. The other is Karl Marx. Both started out as philosophers and critical analysts of the society in which they lived. Hence, their discipline was ‘Political Economics’, a distinction that was later lost. And yet, to me it is the only acceptable way of looking at economics. Because economy does not exist in empty space. It is subject to, and a product of, its political environment. After all, up to half the economic product (GNP) in most countries is consumed by government. And by the way, most wars are being fought for economic reasons. To ignore this is to close your eyes and refuse to accept reality. If its not ignorance, then its intellectual dishonesty.
The ‘ruling class’ or, less emotional, the political-economic environment determines what happens to us economically. Wages are a good example. They don’t just go up and down like the temperature. Their behaviour was different during the Industrial Revolution, after trade unions had been formed, and now with outsourcing and ‘Globalisation’ (another favourite of mine – due out March ’06). To talk about wages in a clinical, economic-modelling type environment is ludicrous. But economists keep playing with slick mathematical models that try to emulate the real world. And they get annoyed when the world refuses to behave as their models say it should.
Here is my list of grudges/complaints about the economist clowns:
- They use gross domestic product (GDP) as if it indicated ‘goodness’ for a country. Is it good for you and me, if the country has exported heaps of copper (or soy beans or anything) ? The extra money goes straight to Pennepott Inc. in the USA. Why is that good for me ? They tell me our GDP per head is greater than that of Elbonia. Makes me proud. But then this is an average figure. If I and most others have made say $30,000 this year and our leading entrepreneurs have made $200 billion between them, the average income is a cosy $100,000. So where are my $70,000 please?
- I’m hearing twice a week how our ‘Visionary Entrepreneurs’ keep creating wealth for the country and, presumably, for me. Its just that I never seem to get any of that wealth. Apart from those who Live Well Without Working and those Who Dont Actually Work , who and where are these smart guys ? (Click here for the answer - due out Feb ’06).
- There are hundreds of different schools of Economics. , all fighting each other and all busy claiming their’s is the only real science. Economists claim economics is a science. Is it ? How come so few of them study Poverty (due out in Jan '06) ? After all the vast majority of mankind is desperately poor. Isn't that a worthy subject ? Or is it not 'sexy' enough ?
- Why do they keep calling shares, bonds, or derivates ‘securities’ ? Everyone knows how insecure they all are. Do people not remember the scandals ? Better put your money in the mattress.
Look at the words they use :- ‘Externality’ is all thats unpleasant, that doesn’t belong to their model. Its outside, its what they’d like to ignore, like pollution, sweatshops, etc. ‘Utilities’ on the other hand is apparently something good, its what consumers should strive to have. Buying one sports car is not enough, you should have two. But, alas, then the law of ‘Diminishing Returns’ will kick in. In case you didn’t know it: The second Porsche isn’t anywhere near as good as the first one.
- Then the magic clause that never fails to amuse me: ‘Ceteris paribus’ . It always appears towards the end of their arguments. Its designed to impress us mere mortals, much like the Pope saying ‘Amen’. Thats because they think we are too dumb to understand Latin (it means ‘other things being equal’). And, of course, its another one of their backdoors. Any assertion containing these words will always be invalid because in a living economy ‘ceteris’ are never ‘paribus’.
A perfect cop-out.
So far this has been about the clowns. But there is another, more sinister type of economists - those who prostitute themselves to organisations with hidden agendas. This is when they become pimps And thats where they do real damage to the rest of us.
Economists like to say: "Trust me, I am an economist". There are two reactions to this: If he is a clown, laugh. If he is a pimp, run.
PS: Even economists can contribute something – like - improving the World , even if only ceteris paribus.
Labels: economists
posted by Rolf Brandt | 20:00
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