Economist Class (Economics Your Name Should Be Humility)

Foreign Policy ^ | March and April 2006 | Moisés Naím

[shrinkermd]

Practitioners of the ‘dismal science’ should stop sneering at their academic cousins in the social sciences—and start learning from them.

In 1849, the Scottish essayist Thomas Carlyle labeled economics the “dismal science.” Two centuries later, contemporary practitioners still study dismal choices: Higher prices or fewer jobs? Spend or save? They have also become a smug lot...

[shrinkermd]

I particularly liked the following quote from the article:

"We do not really know what causes economic growth,” admits François Bourguignon, the chief economist at the World Bank. “We do have a good sense of what are the main obstacles to growth and what are the conditions without which an economy can’t grow. But we are far less sure about what are the other ingredients needed to create and sustain growth.”

"This bewilderment doesn’t just appear when economists confront the devilish problems of the developing world. Plenty of what goes on in the rich world also baffles them. I recently asked a well-regarded economist on Wall Street what puzzled her these days. “Interest rates,” she said. “They should be higher.” Sure enough, economic theory predicts that today’s long-term interest rates—the rates for mortgages or bonds that will be paid years from now—should be higher and heading upward because of an expanding U.S. economy and exploding fiscal and trade deficits. But the financial markets just won’t cooperate: Long-term interest rates have remained low and are actually heading down. Before retiring in January, U.S. Federal Reserve Chairman Alan Greenspan described these trends as “a conundrum.” Robert Samuelson, a Washington Post columnist, surveyed the explanations that economists offer to explain this anomaly and found that they are all flawed. In his view, the experts’ inability to explain something so fundamental “attests to our economic ignorance.”

This is an extremely well written easily read article on a very difficult subject. The author deserves some gold stars!

In the meantime, a re-balancing is happening such that long term interest rates sharply moved up last week.

[Erik Latranyi]

This is an extremely well written easily read article on a very difficult subject.

Yes. Economics is a 'science', but is a great example of how something based on facts can be twisted by emotion and political ideology.

How many times do taxes have to be lowered to prove that it creates economic growth? Not enough times to overcome the bias of those on the left.

Today we see the influence of emotion and politics in ALL our sciences....global warming, abortion, Terry Schiavo, etc

[raybbr]

Nor do economists have a convincing explanation for the value of the U.S. dollar. For more than a decade, economists have maintained that the dollar was too expensive and its devaluation was unavoidable. As predicted, the dollar plummeted 39 percent between 2002 and 2004. An inescapable effect of the economic equivalent of the law of gravity, explained the experts. In a country with a huge and growing trade deficit, out-of-control government budgets, a war expected to cost $1 trillion, and high energy prices, the currency’s value will inevitably tumble. Except that it didn’t tumble for long: The dollar’s decline was so fleeting that economics textbooks didn’t have time to register the change. The dollar recovered quickly, climbing 14 percent in 2005.

Huh? Down 39% and up 14% constitutes a fleeting drop? More junk science from an economist.

[ovrtaxt]

Economics is tied inexorably to human behavior. Understand people, understand the market.

[muir_redwoods]

"As predicted, the dollar plummeted 39 percent between 2002 and 2004."

"Huh? Down 39% and up 14% constitutes a fleeting drop? More junk science from an economist."

A drop of 39% in the years of 2002, 2003 and 2004 (as the article said above) would be an average drop of 13%/year. A recovery of 14% in 2005 shows a good recovery. It isn't where the dollar is that influences world markets, it's where it's going.

[starbase]

Yes. Economics is a 'science', but is a great example of how something based on facts can be twisted by emotion and political ideology.

Remember that old joke where a mathematician, an accountant, and an economist are all asked what the data indicates?

The mathematician says "Well, what does it add up to?"
The accountant says "What was it last year?"
And the economist says "What do you want it to be?"

[steve8714]

Economics is a science, but not an exact one. Anthropology is pseudo-science based upon lies.

[MNJohnnie]

No, the problem is you have in Economics, like most Social Sciences, you have people who subject their profession to their political dogma. Economics is a harder science. The problem is may of it's practitioners are more social scientists. They define reality by what their political dogma tells them it SHOULD be not vice versa.

Rule of law, political stability, limited Govt. interference in the market, development of infrastructure around need not prestige projects etc. The Economic structural rules for success are not that difficult, it is the implementation of them since it requires Politicians and bureaucrats to GET OUT OF THE WAY instead of trying to "help us".

[MNJohnnie]

Always amazed by how the "Strong dollar" crowd do not realize how a "Strong" currency has more to do with ego then Economics. A STRONG currency makes it harder for you to export and easier for people to sell TO you. Amazing how the same people who scream about the dollar usually squeal about the "Trade In balance" as well.

[MNJohnnie]

Umm "Housing Market Bubble" "Higher Intrest rates" are a policy for Carter style economic inchoerence. IF the rising intrest rates are killing the housing market, the solution is to slow the rate increases, NOT speed them up. The suggest that the markets "are overheating" is all based on the spike in OIL prices NOT any real inflationary pressures. Oil is a structural problem based on availablity of supply, speculation and phsycological issues, not "OVERHEATING MARKETS".

[Sam Cree]

“We do not really know what causes economic growth,” admits François Bourguignon, the chief economist at the World Bank. “We do have a good sense of what are the main obstacles to growth and what are the conditions without which an economy can’t grow. But we are far less sure about what are the other ingredients needed to create and sustain growth.”

A guess: economic growth is caused by peoples' desire to make something better of themselve. It is caused by the pursuit of their own self interest, of the pursuit to create wealth which can provide safety and comfort for their families and themselves. And economic growth is caused by the innate need of people to acually accomplish something worthwhile, and the need of most of us to follow a personal dream.

The "main obstacles to growth" are interference with the above by any agent. However, the fact is that the primary agencies interfering with economic growth are governments, which cannot seem to stop trying to put everything and everyone into a box, which cannot stop trying to *control* everything and everyone. Which cannot stop trying to dictate to everyone what their dreams and desires should be.

So, my opinion of what are the "ingredients needed for economic growth" is that the primary ingredient is that governments should play as little a role as possible in the process. Government's true function is to safeguard the real ingredient, the environment of individual freedom and personal liberty in which economic growth can occur. To safeguard the free market. And that is a lofty function indeed, IMO.

I don't pretend to have much understanding of economics, so my apologies if the above sounds unsophisticated or if it addresses the wrong question. I hope it to at least be relevant, though.

[1rudeboy]

Interesting also that the same people who complain that China is artificially undervaluing its currency (which it is) complain if the dollar falls (which it should), which is the best U.S. policy response.

[ClaireSolt]

It is interesting that he eschews the most fact- based of the social sciences, history, in favor of the ones that are based on wild theories and ideologies. History, too, is subject to interpretation and influences by patrons but it is inductive, not deductive.

[ClaireSolt]

Unsophisticated, no. It is Adam Smith in a nutshell.

[Tribune7]

The smartest, most influential thinkers of the last century -- Hayek, Friedman, Julian Simon, Schumpeter-- are considered to be economists.

[raybbr]

Anthropology is pseudo-science based upon lies.

Huh?????

[Alberta's Child]

You are correct in stating that economics is an inexact science. I work as a civil engineer who works on a lot of transportation projects, and most people would be surprised at just how "inexact" this can be even though it is definitely scientific in nature. My work and economics are "inexact" for the same reasons -- because they are heavily influenced by human behavior that is unpredictable by nature.

Just think of how difficult it is to design a road when you have to take into account something as nebulous and uncertain as the intelligence, reaction time and reflexes of drivers.

[CowboyJay]

Economics is a tool to better the standard of living for people. People are not a tool for bettering the economy. Economists quickly lose sight of this. Let's not forget that the main sell of abortion is that child-rearing is an economic burden on a single-mother.

[CowboyJay]

"The smartest, most influential thinkers of the last century -- Hayek, Friedman, Julian Simon, Schumpeter-- are considered to be economists."

You're forgetting Einstein, Churchill, Patton, Pavlov, Bell, Gates, Kissinger, and I'm sure several dozen others. Those on your list may have been influential within the circle of Economic Academia, but I'm not sure they were so influential and highly regarded elsewhere.

[steve8714]

Maegaret Mead based most of her life's work on fabrication..