I was one of the only economists who predicted the financial crash of 2008 – in 2017 we need to make urgent changes The Independent

Economics is driven by ideology – it is ideology, not science, which drives them to assert that bank bailouts are tolerable but policies that protect the poor aren’t. Unsurprisingly, these flawed theories and models are a great comfort to financial elites – which is why so many economists are hired and funded by big banks, corporations and the wealthy

As someone who correctly predicted the financial crisis (first in 2003 and later in a 2006 book) I support Andy Haldane’s assertion that the economics profession is “to some degree in crisis”.

Source: I was one of the only economists who predicted the financial crash of 2008 – in 2017 we need to make urgent changes | The Independent

The reality of how money is created | LARS P. SYLL

A great article backed up with a challenging image

Everything we know is not just wrong – it’s backwards. When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes.

Source: The reality of how money is created | LARS P. SYLL

Economics vs. reality

With thanks to Lars P Syll for this argument about how far we should go to make economic models.  He concludes:

It is better to be vaguely right than precisely wrong

Denicolò and Zanchettin, in an article published by the prestigious Economic Journal, claim to have shown among other things that “stronger patent protection may reduce innovation and growth.” As a…

Source: Economics vs. reality

Why are the boomers so angry?

No, its not really about Borrowing, but I have just spotted this article and was fascinated by the possibility that older people have just decided to kill their golden goose.

Flip Chart Fairy Tales

A quote about Brexit supporters by a friend of mine last week attracted a lot of attention when I stuck it on Twitter yesterday.

This is the last ‘fuck you’ from the baby boomers. They took the secure corporate and government jobs with the guaranteed pay rises and final salary pension schemes and benefitted from property they bought cheap and sold dear. They burnt the bridges behind them by colluding with the dismantling of the very things that had brought them prosperity. Their last act will be to burn the economy before they die.

It even made the Independent. Some people were offended by it but, for the majority of those who commented, it seemed to strike a chord, suggesting there is at least a grain of truth in it.

It is certainly true that the pollsters are recording the highest support for Brexit among older voters. YouGov data

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Time to scrap the Euro?

The euro — gold cage of our time | LARS P. SYLL

 

The euro has taken away the possibility for national governments to manage their economies in a meaningful way — and in Greece the people has had to pay the true costs of its concomita…

Source: The euro — gold cage of our time | LARS P. SYLL

I want to be a millionaire

The real limit of public debt

Everything we know is not just wrong – it’s backwards. When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a…

Source: The real limit of public debt

The bonus puzzle | LARS P. SYLL

Sometimes I come across something that makes me wonder.  This is one of those somethings.  Perhaps bankers bonuses exist because they can get them, not because they help make banks more profitable?

Diane Coyle has an excellent article in the FT about an apparent puzzle. Why do executives get incentive bonuses (extra pay on meeting some target), but most workers do not? Her article is based ar…

Source: The bonus puzzle | LARS P. SYLL

Tell the IMF to count the cost of public-private partnerships – Jubilee Debt Campaign UK

The International Monetary Fund is reviewing its framework for judging whether countries have a debt crisis. But currently, the huge hidden costs of public-private partnerships are not included.

Source: Tell the IMF to count the cost of public-private partnerships – Jubilee Debt Campaign UK

Campaigners criticise Credit Suisse for helping to hide Mozambique loan – Jubilee Debt Campaign UK

Call for IMF not to bail out lenders (who hid loans from public oversight)

Source: Campaigners criticise Credit Suisse for helping to hide Mozambique loan – Jubilee Debt Campaign UK

What’s the point of economists?

Just had to reference this article from Economia – the magazine for Chartered Accountants.

It starts off by saying that economists only get things right about 4 times out of 10.  If I have read the grade boundaries issued by one of the exam boards correctly that would have been enough to get a grade F at GCSE economics units 11 and 12.  And if we use the lower mark “3 or 4 times” offered later in the article it is barely even enough for a grade G.

It then goes on to say economics is not a black and white science – but then what is?  Even the physics of light has to take account of colour.

The profession is likened to a sports coach who cannot guarantee a win even by putting out the best team possible.  Except that economists do not seem to get the sack for repeated poor performance.

Or economists should be likened to medics who would not be able to predict when you are going to get ill but should be able to advise you how to get better.  Except that economists do not seem to be able to agree on a course of treatment – should we spend our way out of recession or should we cut back on public expenditure to balance the books.  Or should we do a George Osborne and try a bit of both – cut back on public expenditure till it hurts and still borrow more.

And then the article talks about the benefit of hindsight giving us 20/20 vision.  But again I am not sure that it does, as economists don’t seem to be able to agree whether they should have been expected to predict the 2008 financial crisis.

But perhaps I am biased in my thinking that economics is not science if we follow the Oxford dictionaries definition:

The intellectual and practical activity encompassing the systematic study of the structure and behaviour of the physical and natural world through observation and experiment

It is included as a social science:

The scientific study of human society and social relationships

which attempts to use scientific methodology but is severely limited because it is not easy (or even legal) to experiment on human society and relationships – so that it is limited to observation without being able to test any theories about how economics works.