Are Economists Overrated?

NY Times debate here.

8 replies on “Are Economists Overrated?”

Re: Making Pie

Diane Coyle, professor of economics at the University of Manchester, wrote.

Economists Deal With the Pie on the Table, Not in the Sky.

I think, that economists, make sure that we have all the ingredients, needed to make, the pie (wherever it needs to go).

The job of non-economists (the sociologists and anthropologists), is to ensure that economists, don’t suffer senior moments, and leave out the eggs, or the sugar. BOH.

Economics is properly Political Economy. Its a science in the same sense as Political Science or Social Science – those nice econometric models are simply the innovations of very bright folk who are easily seduced by numbers.

A great failing of economics is that its theorists have not yet(?) acknowledged that economic activity is an energy and physical resource consuming process and is therefore subject to the physical law – which puts real limits on the extent of all our technological developments – no matter how amazing and fantastic these are.

A second issue is the nature of economic activity itself. Customarily economists use the deceptively simplistic term -“growth”. The reality is that economic activity has to be in a continuous state, or “steady advance” – in effect, economic activity displays over the medium and long-term, an annual, exponentially compounding increase. This is quite plausible in theory, but it completely violates the basic rule of the exponential growth trend of a physical system consuming finite energy resources. Such systems always inflect over to a maximum, then decay. It may take some time, but stagnation is inevitable.

Our contemporary, close-coupled, highly networked economy abides because we have been able to harness the massive embedded energy available in carbonaceous (fossil) fuels. These fuels have no chemical substitute on this planet. They are finite. When they become scarce – that is they become economically more and more costly to extract, then our economies will slowly stagnate. That “steady advance” paradigm will shift from logarithmic to arithmetic. There is nothing available to us to prevent this.

“Are economists overrated”. No: the public folk are not lightly fooled. Its just economists overrating themselves!

In the last few years since the crash this government have been following a lead set buy governments in the US and the UK and the EU to change the way we measure several some important metrics. The most important of which in relation to debt sustainability are GDP and GNP. The main reason for this has been to help in making our economic numbers look better on headlines for the media and thus encourage consumer confidence.

One of the most important duties in my mind of academic economists and finance lecturers (I would never assume those working in industry would have the freedom do something like this) should have been to make the public mindful of these changes and to come up with adjusted targets.
So if for instance the debt sustainability for Ireland was 120% and the government decide to reduce our debt to gdp by depleting cash in hand to pay down IBRC debt adding the economics of sin to GDP and moving various pieces of government debt off balance sheet then at the next conference in Kenmare the economists should come together and say. “the rate of debt sustainability is no longer 120% for Ireland its 110%” or whatever figure they come up with. Now obviously it would also be fair enough to increase the number if the projected interest rates go down etc. This would be a valuable public service. It would also make the government think twice before engaging in the Enron style accountancy tricks that have become so common place that they now form a key element of openly expressed government policy (EG getting Irish water debt off balance sheet) By engaging in willful ignorance the economists and financiers are just helping increase the size of any future crisis because warning lights don’t go off till its too late.

As with any professional group, only a minority make a difference while everyone is fallible.

Peter Blair Henry saying that developing countries expanded by x in 1980-1994, and y in 1994+ because of help from economists maybe correct but would require some work to check it but it may not be true.

Deng Xiaoping, China’s supreme leader, had originally planned to keep foreign companies in clusters that would be independent of the domestic economy. Zhu Rongji, China’s premier in the period 1993-2003, was a bold reformer and a year before he took office, Deng embarked on the famous ‘southern tour’ when he urged party leaders to  relaunch and expand reforms that had faltered following the crushing of student protests in Beijing in 1989.

How much was dependent on economists?

People like soundbites such as the myth that a 10% devaluation in 1993 triggered the Celtic Tiger period – I doubt if the chiefs of big US companies were very concerned about the punt.

John FitzGerald’s testimony at the Banking Inquiry showed that economists can get unhinged from the real world as JK Galbraith recognised years ago.

Irish Boom & Bust: Could conventional wisdom be fooled again?

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