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
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
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
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
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
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
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
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.