I think I'm more or less recovered though I'm getting odd twinges in or around my left shoulder. Can one get whiplash from a fall? Be that as it may, I thought I'd cheer myself up by writing about economics today. It's my not-so-secret obsession. Fill your glass. Here goes.
Economics is an odd discipline, made odder still by vehement attempts to turn it into a science complete with immutable laws. Wikipedia sums it up fairly well:
Economics is the social science that is concerned with the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek οἰκονομία (oikonomia, "management of a household, administration") from οἶκος (oikos, "house") +νόμος (nomos, "custom" or "law"), hence "rules of the house(hold)". Current economic models developed out of the broader field of political economy in the late 19th century, owing to a desire to use an empirical approach more akin to the physical sciences.
Personally, I have always regarded Economics as a fascinating area of study which is far more akin to Sociology than anything else, and whose theories should be regarded with caution and should absolutely not be confused with physical laws. I came to that conclusion when I was studying it back in the early Sixties based upon simple observation and common sense, and I was particularly suspicious of economic modeling because it seemed to me that however sound the math, the models were so dependent upon assumptions and inadequate data that the results, in real world terms, had to be skewed. Over time, computers have become vastly more powerful and able to cope with both more data and more variables, but I confess I still regard computer modeling as useful rather than definitive, and, in many cases (such as in Third World Development), no more than rationalization for some decidedly dubious practices. Further, I regard the tendency of many politicians to cherry-pick bits of economic theories to support their political ambitions as being iniquitous - Supply Side Economics being a classic example.
What has frustrated me about the development of Economics generally has been a sense that an extremely useful area of study – akin to History if you will – has been hijacked and misused for personal gain instead of being utilized to general advantage; and, in addition, has been perverted intellectually to the point where society is in danger of losing sight of its basic utility. Here, the best example of this tendency has been the near worship of ‘Market Fundamentalism’ – the notion that unfettered capitalism in the form of unregulated free markets constitutes the optimum economic system because, apart from yielding maximum growth, it is also inherently self-regulating. Given the Great Recession, whose consequences are far from over as I write, such belief flies in the face of the evidence but it continues nonetheless. It endures because it’s an ideology, because it is politically convenient, and because of massive ignorance.
Nobel laureate Joseph Stiglitz argued in his latest book, FREEFALL, that the whole economics profession needs to do some soul-searching and George Soros has put up $50 million to fund a new think-tank to reconceive the field of economics which he describes as “a dogma whose time has passed.” The new organization will be called The Institute of New Economic thinking and its advisory board will include such economists as Jeffrey Sachs, George Akerlof, Kenneth Rogoff, and Stiglitz himself as well as commentators such as Anatole Kaletsky and John Kay.
Whether you agree with Soros and Stiglitz’s politics or not, I think they are on the right track when it comes to re-thinking the core discipline of Economics. Soros’s own obsession is with “reflexivity,” which is the notion that markets tend to influence perceptions of reality, which in turn feed back into markets. For many years I called that no more than “markets feeding upon themselves” – which seemed to me to be self-evident – but I’ll be the first to admit that Mr. Soros has the edge when it comes to utilizing his insights to financial advantage. On the other hand, after trying to read two of his books, I don’t feel overly concerned about George Soros as a competing thriller writer. That said, I’m curious indeed to see what his think-tank comes up with.
I never thought I would write this line – but here goes: Economics is fun.