What's Wrong With Economics? Almost everything. Economics started as a social philosophy without a name, attached itself to famous old men, erected dogmas around its heroes, insinuated itself into politics and policy making, and then violently collided with computer technology... at which point all holy hell broke loose upon the "dismal" profession. The unfortunate result being the modern, mainstream economist that sets the agenda for the planet based on nothing more than spurious Excel spreadsheet models...with surprising but predictable effects. Bullshit (it appears) does baffle brains...and pays very well.

Economics does have its pleasures. Reading the works of older thinkers who laboured before mouse or keystroke is a joy. These fellows were philosophers who were attempting to make sense of a rapidly changing world of mercantilist empires and evolving populism. They sought to explain and reconcile, to propose and disprove. They were scientists of a fashion, attempting to refine and synthesize thought to climb - as all science does - the long ladder to understanding. They wrote in the flowing prose so fashionable at the time, and appealed to people and not their peers. Their words were crafted art, their appeals to logic and reason. Their sole tools were pen, mind, and observation. They had no formal training.

Through no fault of their own however, the early economists became victims of their own success. Powerful interests began to adopt them like chicken suited mascots. Wonderfully crafted literary metaphors were drafted in defence of the interests of the rich and powerful who couldn't get enough of the "invisible hand", while the lesser folks embraced an idyllic community of workers with no need of evil "Capitalists". Petty politics took notice.

John Maynard Keynes became the last of the great philosopher economists, and the first of a new breed of analysts. There had never been a "Malthusism", "Smithism", or "Ricardoism". Now, from the carnage of the war to end all wars, we suddenly had fully fledged ideologies; Keynesianism, and Marxism, capitalism and communism. The new religions polarized all social thinking. Schools of new economic thought fell away. A legion of growing institutions teaching the established catechisms of the new dark art streamed young minds into growing ideologies. A paralysis of black and white set in. Right and wrong. Good and evil.

By the close of the next great war (which was even greater than the Great War) the deal was sealed. The earth was rent asunder by competing economic systems, each with its own panoply of old economic philosophers, now hauled out to carry the flag. All social thinking was forced to take sides and economics began to drive the political agenda. Nationalism, patriotism, communism, capitalism. Americanism. Economists ceased to strive for truth, and instead doubled their efforts to defend their systems. Dissenters and heretics were marginalized. Some were jailed. Competing ideologies armed themselves to the teeth, turning the prodigious power of their peoples to the mutually shared task of building enough nuclear weapons to blow the economics of each out of the galaxy. Human beings, once the docile interest of ancient thinkers, now became warm and supple fodder for gargantuan feats of strength performed by economic alchemists. Folks became the living chalk marks of baseless theory.

Education systems were designed for economics. An iron clad hierarchy of learning filtered out the idiots and apostates. You needed a degree to wear the mantle of economist, and you needed to tow the company line to earn the degree. It just wasn't thinking unless it was peer reviewed, freelance dreamers need not apply. No new ideas allowed in the new ideology. As the cold war escalated academia began to stretch the limits of only two basic brands, desperately trying to turn the flank on each other. Pushing the boundaries of extreme doctrine right and left, economics retreated into arcane theory, mathematicians pushed their way in, folks became numbers, and the theory grew thin as it bumped and rolled under the complexity of the real, outside world.

Unnoticed, and a million miles below, theoretical people were dying, displaced, and dispossessed on both sides. Inequality and injustice grew. The more powerful economists became, the wider was the scythe of wretched poverty and oppression. Economists became rich fighting for systems that would make them rich...and tenured. Folks had no such luck. There didn't seem to be any amount of social disgrace that could force the new economists from their steadfast loyalty to what should happen, what did happen being none of their concern.

Nobody is really sure who the first economist was who received a computer, one of those room filling behemoths costing millions that only academia could afford. Computers computed, and what they computed was a mind boggling series of yes's and no's, the ultimate extension of the black and white world. If it was run on a computer it was a number, and if it wasn't a number then it wasn't important. Everything was true or everything was false. Humans with names like Bill, Dave, and Nancy became data with label fields like 20465, 11231, and 666. Whoever that economist was, he no doubt was ecstatic, and he no doubt was in finance and again, without a doubt, he pushed the new machine into business.

For the first time, economists could reduce every theory to a series of true and false statements, and have a computer run staggering amounts of proofs for the defence of their ideologies. Where once a dedicated lifetime was required to build a bulletproof conjecture, now a snotty teenager could run a theory in the basement while the economist lectured floors above. Moreover, if the kid emerged with problems he could be sent back to the keyboard until the theory worked. Fails were simply written out of programs, especially if they were caused by squishy things like justice, empathy, ethics and morals, which did not program well.

No executive suite was now complete without its own computer savvy economist. Finance companies, banks, and governments took to the new computerized wizards like flies to horse crap. Systems analysts and finance modelling was born. Colleges and universities were filled to bursting with eager beaver would be finance titans, impatiently ploughing their way through dismal economics to get at the top floor jobs of industry. Once there, they were expected to bend the rules and make economics conform to profit making harvesters, on which their insane amounts of bonuses depended. Absolutely no one ever got paid for asking questions or wondering out loud.

Computing power increased through the 1970's, prices began to drop, and computers began showing up on desks on every floor. Stock markets became wired to banking houses and finance firms. The Hedge Fund was born. The speed and reaction time of the computer, coupled with its exponentially growing ability to crunch dollars attracted the interest of growing legions of ever more specialized economists turned financiers. If a thousand dollars could be made in a week last year, a million could be made in a day today. The markets became the only scorecard that mattered. Government was pushed aside to allow ever greater concentrations of capital, no longer delivered in heavily armed quaint old Brinks trucks, but now reduced to blinking screens of endless zeros that zipped between traders in an instant.

But the 1970's were proving to be a challenge for economists, as the real world stubbornly refused to conform. Booms and busts proliferated and the game of economics turned to trying to flatten out reality, or making apologies for it. Finance economics learned to make money either way. In America, a pyramid of complex and baffling economics laid underneath the simple cap stone proposition that all the worlds a bank, and humans just bit players.

Free markets became the Washington Consensus, and from the Chicago School of Economics rose a phalanx of automaton economists convinced the planet needed free markets, as in free from fickle human interference. The power of profit gleaned from accumulating entire nations worth of capital drove human destiny. The now stunning amounts of money that private institutions could manipulate drifted into dogma, and the dogma drifted into political power. Milton Friedman was unleashed on the entire continent of South America with the full support and backing of the American government. It was the final triumph of economist turned god. "Billions of dollars" entered popular lexicon, as did "Disappeared", as thousands died horrible deaths in the wake of the Chicago School, and the glory of a free market god.

Ronald Reagan. Two words that delight economists who revel in the golden age of theoretical worlds and theoretical people. Computers turned Billions into Trillions. Human regulation fell away. Fewer and fewer got more and more, the rest got cell phones and VCR's. Economics celebrated every time a micro chip stole a hundred jobs from stupid, lazy people. The planet began to wheeze and stink as economists fought a never ending battle to "externalize" costs and effects they couldn't program. Actual, intelligent, thinking people became slaves to theory, hopelessly tied to their inbred dogmas, their very veins plugged into analytical programs and models.

What's Wrong With Economics? Almost everything.

"When monetary policy is unconstrained, it can cushion the impact of foreign disturbances. By contrast, in a liquidity trap, monetary policy cannot crowd in domestic demand as effectively, and the spill over effects of foreign shocks can be magnified greatly. The amplification of idiosyncratic foreign shocks depends both on the duration of the liquidity trap and the size of the foreign shock, as well as on key structural features such as the trade price elasticity."

The economist who gaily penned this invigorating snippet shall remain nameless to save him utter humiliation (but professional ovation). This is what economics has become in the 21st century. All this overly educated dude was trying to say is that when the shit hits the fan around the world, it is best to drop the crap and talk about it. Or something like that. The first thing that's wrong with economics is that it has become as inaccessible as an ancient Greek oracle. Few humans can understand economics anymore, and it has become an arcane set of voodoo incantations issued from above the clouds, and gobbled up by earthly political representatives. None of whom understand it either. Virtually no representative body on earth has the skill or moral fortitude to utter "say what?". Stupid is asking, smart is going along.

The second problem with economics is that it has become entrapped in an education system that teaches to reward. There is absolutely no systemic incentive to wander off the beaten path; no book deals, TV appearances, or ministerial appointments without dogged ideology - and all the academic medals that entails. Sure you can find a degree program that offers environmental economics, however you will never work off the money you borrowed to pay for it, and like the Salvation Army, you have to first bow your head and pray before you get your bowl of soup.

Economics has suffered for a generation on the very uneconomical presupposition that there are only two national brands, only two ways to skin a cat. Capitalism in all its celebration of unfettered free markets, and Capitalism as limp and yellow socialism. This childishness has just got to stop. The world is a kaleidoscope of varied colour, all resulting from the unbounded mixing of only three primary colours. Economics must accept that there are more than two basic shades of the same thing.

How do you make an economist disappear? Unplug his laptop. Waaay too much theory is done on computers, and digital conclusions appear as policy waaaay too many times. Computers are singularly awful at economics not because of what they can compute, but because of what they can't. Sophisticated modelling and system analysis play far too great a role in economic thinking, thinking that in the end, should be all about un-programmable people. Computers are a resource, and not a weapon. Economists should always accept theoretical conclusions as just that, theory, and use their common sense, empathy, sense of justice, and moral integrity to filter the results.

As well, there is simply not enough interdisciplinary collaboration in economics. So incredibly specialized now, few of these people ever stop competing with each other long enough to "blend colours". Any study of humans is economics, and all studies form a part of the discussion. Representative governments need to start recognizing that Harvard educated finance dudes confer only one sliver of the possible. They represent only their own arcane constituency, and are remunerated for that well enough to make the average head explode. In any public policy discussion, they may be biased just a tad.

More than anything else, economics must return to its comfortable role as social philosophy. Economics should support nothing, and question everything. Economics cannot - by the very nature of its human subject - offer iron clad conclusions, or be inflicted bare bones on any living thing. Economic "forecasting" should be recognized as the oxymoron it is. Economics is a way of thinking, not a way of living; the study of how humans interact, what happens when they do, and the range of possible results that come from their interaction with the earth. The variables are endless and incomputable, and economists must start admitting it. They don't know. They are guessing.

In 1932 Lionel Robbins (an economist) defined economics as "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses." Couldn't be simpler. Born in 1898, Barron Robbins would have grown up in a world of economic philosophy, and would have experienced a series of historic human catastrophes by the time he coined the definition. For him, the key words were "human behaviour", and he knew all too well how sad and irrational human behaviour could be.

Ten years before Robbins was born, "Progress and Poverty" was published in the United States by a one time gold miner, newspaper man, and evangelical Protestant named Henry George. Absent any formal education what so ever, George wondered just the same why the rich around him were rich, and the poor around him so many. George could write, if nothing else, and ideas need words to think;

" I asked a passing teamster, for want of something better to say, what land was worth there. He pointed to some cows grazing so far off that they looked like mice, and said, 'I don't know exactly, but there is a man over there who will sell some land for a thousand dollars an acre.' Like a flash it came over me that there was the reason of advancing poverty with advancing wealth. With the growth of population, land grows in value, and the men who work it must pay more for the privilege"

With thinking as pedestrian as that, Progress and Poverty sold over three million copies in its first years, was translated into dozens of languages, and was read and quoted by every social thinker of the day.

In 1879. 1879!

No one has heard of it, or Henry George today. George, poor man, didn't go to Harvard.

And that's what's wrong with economics.

Aetius Romulous

Historian, Economist, Accountant, Writer, and blood sucking CEO.

Born at the wrong end of the Baby Boom Generation - too late to enjoy the ride, too early to have missed it, and stuck in the middle with the mess.

Aetius writes and blogs from his frozen perch atop the earth in Canada, spending the useful capital of a life not finished making sandwiches and fomenting revolution.

It's a living.

http://screambucket.com/

aetiusromulous [at] rogers.com