Pros need to know that ethics matters
Time to stop rewarding economists for bad behavior
“Don’t bite the hand that feeds you” is the motto of most professional economists. The exceptions -- who were also able to predict the bubble bursting -- are noted below. This 2012 article is from The Conversation, Mar 15.
by Philip Soos (Deakin University)The global financial crises since 2007, typically generated by over-lending by the financial sector and crashing housing [land] bubbles, are often blamed upon politicians, government bureaucrats, financiers, bankers, and the real estate lobby. There is, however, a third villain that bears primary responsibility for these disasters -- the economics.
It should be predictable that if a particular policy was successfully implemented and incurred the expected outcomes, then the economists in charge will have their careers advanced. If the opposite occurs, then it is expected that the economists responsible should be subject to severe penalties. Unfortunately, recent outcomes have ensured the former, but not the latter. For instance, the largest bubbles in US history -- dot-com and housing -- were followed by sharp economic downturns. Both times, the overwhelming majority of economists missed and/or denied the existence of the bubbles.
The aftermath of the tech bubble was a recession, and the collapse of the housing bubble could well have resulted in another Great Depression.
One would think that given the wide gulf between economic theory and reality, the economics profession should have performed some sort of self-assessment. Instead, they seem to have fervently congratulated one another for having saved economies. It is outrageous those economists in important policy-making and influential positions even keep their jobs: senior economists within the central bank, treasury, the financial regulator, commercial lenders, investment banks, and supranational organizations.
If a taxi driver was to crash while drunk driving, injuring passengers, they would be fired and can be charged by the authorities. A nurse that continually gives patients the wrong medicines, resulting in suffering or even death, will lose their job in short order. A cook that leaves the stove on after finishing work, burning down the restaurant, will predictably lose their job.
On the other hand, economists who are complicit in the collapse of multi-billion dollar corporations and trillion-dollar economies are still employed, often working in the highest levels of government, industry and academia, while unemployment, bankruptcies, and general misery blows out of all proportion among the public.
Given the extraordinary level of incompetence shown by these economists, one may ask why they are still employed. Surely the economics profession should be treated similarly to other professions: incompetence on the job should result in disciplinary measures and penalties.
One explanation can be found within economic theory itself. The rich and powerful create strong demand for economic ideology that justifies their wealth and power. Thus, those economists who supply such ideology will be rewarded regardless of performance.
Wealth-maximizing economists will serve monied interests in order to enrich themselves, regardless of the effects upon others. Within modern economies, the wealthy are increasingly invested in the financial rather than industrial sectors. Accordingly, economists seek to work at the behest of financial institutions: commercial lenders, investment banks, hedge funds, money management funds, etc. The owners and managers of these institutions naturally seek that economists advocate theories and policies that empower them economically and politically.
Within the economics field, there exists a substantial literature on the capture of institutions: for instance, government capturing producers, or industry capturing government regulators, for the purpose of empowering the institutions performing the capturing. Less well-known is the capture of the economics profession, whether it is individual economists or entire schools and departments at universities.
Universities are often dependent on outside funding to keep their economics and business schools functioning. Corporate-friendly businesses, think-tanks and wealthy individuals will meet this need and provided the necessary funding. Although there may be no strings attached legally, the entire funding is an enormous string in itself. Crafting theories and policies that run counter to what the funders want to hear will not ingratiate them to the recipients.
The phrase “don’t bite the hand that feeds you” is rather apt to this situation. The course of action to pursue, therefore, is to speak the words pleasing to the funders, which often means pro-corporate theories and policies.
Economic policy tends to run in a similar fashion, with a clique of leading economic thinkers chosen to reform policy in accordance with best practice -- best practice means not what is in the best interests of the public, but rather what benefits the narrow sectors of concentrated private wealth and privilege that huddle behind the conservative nanny state.
If other professions can be held accountable for poor job performance, why not economists? Providing a set of penalties in the form of fines, loss of employment, and even imprisonment in the worst cases of financial and economic crisis, can provide economists the incentive to advocate policies based upon scientific theory of how the economy does function in the real world, rather than how it ought to work in a textbook.
To see the whole article, click here .
JJS: Economists can not become scientific until they admit to the difference between owning and earning, between rent-seeking and useful production, and between never-produced land and resources and constantly-produced goods and services. To do that takes confronting the powers that be. To see how Big Business created the economics discipline, check out Mason Gaffney’s Corruption of Economics ( click here ).
As for being able to predict … At least three geonomists, using the 18-year land-price cycle, predicted the recent recession, in print, well in advance, to the exact year, and explained why it had to happen in clear, simple statements:
* Fred Harrison, PhD, who resurrected Homer Hoyt’s century-old work on Chicago land prices, did so in his book "Boom Bust." It was published in 05, but he's been making that prediction since at least 1997. He also showed that the bust would be worse in areas where land taxes are low. To see his work, click here .
* Dr Fred Foldvary, Sr Editor here at the Progress Report and economics professor at Sta Clara U, did so in his article on "The Business Cycle" in the Oct. 1997 issue of the American Journal of Economics and Sociology and at this site (to see the article, click here .
* And Aussie Phil Anderson, in his newsletter to clients in 2003, even advised them to short bank stocks in three years.
* Even yours truly did it in our newsletter to supporters.
If we can do it, why can’t the mainstream pros? Because basically, they’re paid not to know, to look the other way.
In the history of civilization, astrology yielded to astronomy, alchemy to chemistry; now may economics yield to geonomics.
Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .
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