Astrologers, Weathermen and Economists

By Ranjan Yumnam *

An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today.

- Laurence J. Peter

Economists do it with models. But when those models are based on a flawed premise of pandering to unhindered greed, then economists' policy prescriptions would inevitably fall kaput. The latest example is the global economic slowdown that has engulfed the affluent and developing countries alike.

Why did the all-knowing economists not sound an alarm when the economic crisis was imminent?
Was it greed?
Were economists in the payroll of the predatory banks?
What happened to the famed crystal balls of the economists?

Whatever may be the reason, there is no doubt that the profession of economists and the discipline of economics itself has suffered a setback and loss of credibility.

Contrast this fall of the economists into disgrace with the popularity and the respect that economists had earlier enjoyed before the financial crisis erupted. Economists were the demi-gods and they prescribed solutions for any problems under the sun. If you had read Freakonomics, for instance, you would get a hang of what I am saying.

In the book, Steven D Levitt, the rogue economist behind Freakonomics, explored eclectic areas that were beyond traditional economics' domain. A disciple of rational utility maximization, Levitt analysed, among others, how our names affect our career paths; how abortion and the crime rate are related; why drug dealing is only lucrative for the dealers at the top of the pyramid, etc. You have a question; economists would have the answer and serve it on a platter.

In their heydays, economists became star speakers earning fees in six digits for mere appearances and mumbling non-sense at university halls. We all were in awe at their brilliance. I too was part of this fawning crowd; I arranged frantically for an interview with Freakonomics authors, which I got, and wrote a breathless review of the book in the Times of India.

Then unfortunately for the economists, the financial crisis happened like a bolt from the blue. Economists who had basked in the glory of intellectual hubris suddenly became defensive and scrambled for cover. The churning and introspection started; the mask of invincibility had crumbled with a thud.

The first signs of cracks within the economists' community came from Paul Krugman, the venerable Nobel laureate and New York Times columnist, incidentally one of my favourites. At a recent lecture, he lambasted the direction economics thinking had taken and argued that much of the past 30 years of macroeconomics was "spectacularly useless at best, and positively harmful at worst."

Efficient Market Hypothesis, a sacred cow of the economics theory, had taken a beating. In layman term, the hypothesis represents the belief that it is impossible to "beat the market" because it knows best. And this assumes that market is rational, which is a false belief because market is run by not entirely rational human beings whose economic behaviour is highly unpredictable.

Forget about all economic jargons, the simple truth is self-interest and greed is at the center of the current global financial crisis. One of the cardinal principles of economics, which is accepted from the times of Adam Smith is that there is no such thing as free lunch. Our excessive preoccupation with making quick bucks without sweat and toil is undermining our ability to earn our livelihood with dignity.

We all are after free lunch. We forgot that somebody has to pay the price and cook the food before we can devour it. A striking example of such rapacity in our society is the craze for so-called pyramidal quick-fix-get-rich schemes like TVI Express and NSEM, which are nothing more than a dubious ploy of ripping other people off to enrich oneself.

Some unsuspecting people have to inevitably pay for the cheque you will be getting with glee. My guess is that out of 100 people who join such con schemes, only about 10 people will pocket the rewards while the remaining 90 people will be deadwood who will be there only to sustain the ambitions of the greediest of the lot.

This is what is hapening at a global scale with banking giants and the central banks colluding with megalomaniac economists to dupe the public and snatch their hard earned money. There is a lesson in it for us: The era of free market should hopefully come to an end and government's role as a regulator should step up.

Economists should try to poke holes in the current system of capitalism that relies too much on the whims of market and ignores the vast majority of the people who live in poverty in shanty towns.

Yes, it is true that the current bout of recession will lead to some 50 million people losing their jobs according to ILO, but has any economist of significance, save Amartya Sen and Joseph Stiglitz, looked beyond the gleaming Wall Street at the humanitarian crisis of the two billion people in the world who barely subsist without healthcare, adequate nutrition, education, shelter and clothes. Why don't they focus on life security instead of securitisation and derivatives for once.

This is a hard call for the economists as they are used to making policy from the elites' point of view. The million-dollar question is: who will trust economists now? The discipline and the profession are in tatters. The joke is that astrology, weather and economics should be taught as part of the same course by the same teacher for they are pretty much same in terms of the nature of their crafts—which is to make predictions by shooting in the dark.

And here's a secret from the X-Files: Economics is the only field in which two people can share a Nobel Prize for saying opposing things. Gunnar Myrdal and Friedrich Hayek shared one.

*** E-mail may be quoted by name in Ranjan Yumnam's readers section, in a future article, or elsewhere unless the writer stipulates otherwise.

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Ranjan Yumnam

* Ranjan Yumnam, presently an MCS probationer, is a frequent contributor to e-pao.net. He can be contacted at ranjanyumnam(at)gmail(dot)com. This article was webcasted on August 05, 2009.

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