How many economists saw the financial crisis and resulting recession? Some did, in some form or another, but their voices were not loud enough to get attention. Or perhaps, the voices of other economists were just much louder. The most famous of loud economists in Alan Greenspan, the former head of the Federal Reserve Bank. He was an outspoken cheerleader for free markets and minimal government intervention.
And where did that get us? The once proud Greenspan has acknowledged weaknesses in his ideology, which is a really nerdy way of saying he was wrong. But worse though, is the whole idea that economists have ideologies.
And of course they do. The simplest way to break down the ideologies is to watch the Keynes vs Hayek rap video (version 1 and version 2). But the economic philosophies are as diverse as religion. It’s sad that such ideologies exist since they very much influence the economy. All that economic stimulus is out of the book of Keynes. Economists today don’t really understand how the economy so they have educated guesses on how it works. Over time they become entrenched in these guesses, which become theories, which become “real” to them.
Economics is showing the good people like you and me that they have very little to offer us, or even businesses in general, so says a columnist for the Financial Times. It would be interesting to watch what happens to the economy if economists weren’t allowed to talk for a year. I for one, being an amateur student of economics myself, would welcome it.
But I do want to point out that this kind of economics is macroeconomics. It’s the economics concerned with the economy as a whole, also referred to as the macroeconomy. But there are other types, notably microeconomics. If you’ve read Freakonomics or their blog, you will have a much better idea about the differences. They don’t always talk about the greater economy. Many microeconomists are only concerned with the inner workings of a company, or a town.
It’s the macroeconomists that get the headlines though. And we trust them just as we would trust a physicist’s understanding of gravity. This is unfortunate because economists are showing time and again that economies are too big and complicated to be explained by a formula or even a series of formulas. It might be time for us to spend less energy on the bickering of economics, and more time studying it. We don’t yet have an understanding of philosophy, or religion, and perhaps economics should join with their departments.