Following Queen Elizabeth’s question to the economistsâ€”Why did no one see the crisis coming?â€”the Financial Times goes one further asking, What is the point of economists?
If the economics profession could not warn the public about the credit crunch and the recession, what is the profession’s raison d’etre? Did this reflect, as some claim, that economics has gone astray with models that no longer help understand economic reality but rather distort it? Did such models even contribute to the crisis?
Respondents include Samuel Brittan, the FT‘sÂ economic commentator;Â George Magnus, senior economic adviser for UBS Investment Bank and author of The Age of Aging; andÂ Robert Shrimsley, FT managing editor. This, from an FT editorial:
No economic theory can perform the feats its users have come to expect of it. Economics is unlikely ever to be very good at predicting the future. Too much of what happens in an economy depends on what people expect to happen. Even state-of-the-art forecasts are therefore better guides to the present mood than the future. Though they may also be self-fulfilling prophecies.
Dabbling in paradox limits the use of economics as a practical guide. Today the profession’s best advice must convince politicians and the public to combat a crisis born of insufficient thrift by a recourse to record borrowing. Those who saw danger had no easier task: even reminding people of gravity’s existence is a hard sell when everything is going up.
If predictions of physics-like precision are in demand, they will be supplied. Collective delusion must therefore be blamed as much on the consumers of economics â€“ companies, investors, the media â€“ as its producers.
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