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Economic Crises and the Crisis of Economics

January 13, 2017

Economic Crises and the Crisis of Economics

LONDON – Is the economics profession “in crisis”? Many policymakers, such as Andy Haldane, the Bank of England’s chief economist, believe that it is. Indeed, a decade ago, economists failed to see a massive storm on the horizon, until it culminated in the most destructive global financial crisis in nearly 80 years. More recently, they misjudged the immediate impact that the United Kingdom’s Brexit vote would have on its economy.

Of course, the post-Brexit forecasts may not be entirely wrong, but only if we look at the long-term impact of the Brexit vote. True, some economists expected the UK economy to collapse during the post-referendum panic, whereas economic activity proved to be rather resilient, with GDP growth reaching some 2.1% in 2016. But now that British Prime Minister Theresa May has implied that she prefers a “hard” Brexit, a gloomy long-term prognosis is probably correct.

Unfortunately, economists’ responsibility for the 2008 global financial crisis and the subsequent recession extends beyond forecasting mistakes. Many lent intellectual support to the excesses that precipitated it, and to the policy mistakes – particularly insistence on fiscal austerity and disregard for widening inequalities – that followed it.

Some economists have been led astray by intellectual arrogance: the belief that they can always explain real-world complexity. Others have become entangled in methodological issues – “mistaking beauty for truth,” as Paul Krugman once observed – or have placed too much faith in human rationality and market efficiency.

Despite its aspiration to the certainty of the natural sciences, economics is, and will remain, a social science. Economists systematically study objects that are embedded in wider social and political structures. Their method is based on observations, from which they discern patterns and infer other patterns and behaviors; but they can never attain the predictive success of, say, chemistry or physics.

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Moneyweek: Hands Off Our Cash Petition

October 21, 2015

Moneyweek: Hands Off Our Cash Petition

Andy Haldane recently floated the idea of abolishing cash so that radical monetary policy like negative interest rates can be implemented.

You can sign the Moneyweek petition against this here:

http://moneyweek.com/wp/hands-off-our-cash-petition

Whereas the Bank of England’s Chief Economist Andrew Haldane announced on 18th September 2015 his intention to abolish use of cash in Britain in order to allow the bank to impose negative interest rates on savers;

Whereas this would allow banks to charge you to keep your money on deposit and make it impossible to remove your money as cash in response;

Whereas Denmark, Sweden and Switzerland have already imposed negative interest rates;

Therefore, we the undersigned, as concerned savers and investors of Great Britain, do call on Her Majesty’s British Government to:

1 Guarantee that cash will not be abolished from use in the UK
2 Guarantee that negative interest rates will not be imposed undemocratically on British savers
3 Establish a form of public consultation on the specific mandate and monetary policy limitations of the Bank of England

Olduvai IV: Courage
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Olduvai II: Exodus
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