In response to an FT article by Martin Sandbu on 24th February 2016, entitled ‘Do we need a new kind of economics?’
“The widespread public suspicion of economics and economists should be obvious to anyone who cares to notice. It is a disenchantment captured well in the opening pages of The Econocracy: “The authors of this book are of the generation that came of age in the maelstrom of the 2008 global financial crisis . . . We felt that to understand and shape the world we needed to speak [economists’] language . . . [but] we are all keenly aware that our economics education has not equipped us with the knowledge or skills to justify any authority we are given.”
The authors — Joe Earle, Cahal Moran and Zach Ward-Perkins — are the founders of a campaign to reform economics education, which began at Manchester University but has seen sister campaigns pop up around the UK and beyond. They chose to study economics as a personal response to the shock of the crisis, in the entirely reasonable expectation that an economics degree would help them understand how it happened and how another crisis, and other problems in the economy, could be avoided with better policies. They should be the dream students of a discipline that likes to have influence in the world. If economics cannot make itself seem relevant even to them, it has a problem. At some level, the profession is not living up to what we are entitled to demand of it - Martin Sandbu
There may be nothing wrong with economics that a complete cull of the 'pop star' professors wouldn't solve. Or...we could wake up to the inconvenient truth that a PhD in economics is not a sign that the recipient necessarily understands very much about the real world of people, resources and relationships.
Either of these would go a long way to solving the problems that have arisen from having a collection of blinkered fools in policymaking roles, writing for financial papers, and/or polluting the minds of young people who've gone to university with a view to doing something useful when they leave. E.G.:
- No more time wasted poring over the words of Ben Bernanke, a guy who thinks that the difference between an interest rate of 0.1% and -0.1% is nothing more meaningful than 20 basis points...who, despite warnings that negative rates would be deflationary...(because 'responsible' individuals would save more for their retirement and SMEs would invest less to conserve capital in what is clearly a 'dangerous' environment)...has persisted in claims that negative rates will be stimulative. Not to mention the fact that years earlier, his QE 'wealth effect' turned out to be bunkum outside the limited world of share buybacks and LA Condos
- Goodbye Larry Summers, who couldn't foresee the possibility that abolishing Glass Steagall and deregulating derivatives would lead to unsustainable leverage; lost billions from the Harvard Trust Fund because he was too arrogant to take the advice he was repeatedly given; and still thinks that negative interest rates are a good idea...a guy who is no more capable of admitting that he made a mistake than he is of realising that his 'wonderfulness' is of limited interest to anyone other than his acolytes, his mum, and his bathroom mirror
- So long, Paul Krugman, who was still bleating that 'debt doesn't matter' as recently as 4 months ago, but has mysteriously had a change of heart since his idea of the anti-Christ arrived in the White House...apparently it matters a lot now
When it comes to understanding the economy, rather than economics, none of the aforementioned 'empty suits' can hold a candle to a guy like William White; or indeed to a whole host of business people, analysts, and other 'lay' people...people who observe and trust what works in the real world rather than on a spreadsheet; people who are incentivised by feedback from reality, not by the good grades that can be achieved by regurgitating the ideas of one guy, who got his reputation from agreeing with another guy, who didn't know what the hell he was talking about in the first place.
There's little wrong with economics that couldn’t be fixed by paying more attention to the economy. Oh yes…and spending a few years doing a real job before ‘teaching’ wouldn’t do any harm either.
P.S. One ‘real worlder’ with knowledge of the ‘disconnect’ that I’m referring to is Danielle DiMartino Booth…a successful Wall Street investor…who went on to be one of the very few journalists who predicted the real estate crash…who went on to become a special advisor to Richard Fisher - Governor of the Dallas Fed and member of the FOMC (Fisher was the only Fed board member with any experience of running a business).
Her latest book ‘Fed Up - an insider's take on why the Federal Reserve is bad for America’ will be a revelation for many who haven’t paid close attention to the absurd antics of central banks…and will be a great head nodding experience for many who have.