Tavi Leoka.Photo provided
How to trust economics. This was one topic of discussion at last week's Davos conference, where some very important people gathered to give their views on the state of the global economy.
Broadly speaking, this discussion considered the current economic system itself, which in the wake of successive global shocks has come under increasing criticism for not providing for the least harmful interventions.
Christine Lagarde reflected on how the European Central Bank (ECB) made wrong decisions in the wake of the recent inflation spiral and explained her wariness about the economic model. Economic models fail to predict the true impact of geopolitical shocks.
On the other hand, the central bank could be criticized for failing to see signs that inflation would persist despite these shocks and saying it should have raised interest rates sooner. Another view is that the ECB should have ridden the wave and held on rather than inflicting so much pain.
The ECB's alternative was to stay on the back burner and then quickly raise interest rates to multi-year highs.
Mr. Lugarde's criticism ultimately focused on the economists themselves, describing them as “tribal cliques.” Despite her work immersing herself in that world, Lagarde is a lawyer, not an economist by training.
“They quote each other…but they don't go beyond that world, because they feel comfortable in that world.” Maybe the model has something to do with it. “No,” added Lagarde.
“And what I think we need to move forward with, and what I'm trying to convince my colleagues that we need to do, is embrace people who are not members of the tribe.”
Last week, South Africans experienced the kind of influence economists have despite being members of this fallible tribe. I am, of course, referring to the Tavi Leoka scandal, which received considerable attention last week, even from people who would not spend much time thinking about the political lives of economists.
At the heart of Leoca's appeal to the qualification is the belief that what economists do really matters. To some extent that's true.
After all, they are often given the most important jobs, such as advising heads of state on how to curb inflation or, in Leoka's case, how to revive a lagging economy. They are often tasked with using their qualifications to help shape policies that affect us all, even if the impact on their lives is less severe.
However, as Lagarde suggests, there are significant limits to the actual power of economists. Some people may believe it, but their ideas are not the most reliable in science.
Kate Roworth delves into another side of the economist's problem in her famous book. donut economics. In it, Raworth points out that economists have an air of authority. “They have a front-row seat as experts in the field of international policy, from the World Bank to the World Trade Organization, and are rarely far from the ears of those in power.”
Raworth then pointed out that the problem with the influence economists have is that they are taught economic ideas that are rooted in the distant past.
“Given the rapid pace of change in the 21st century, this is shaping up to be a disaster,” Raworth wrote.
“Of course, the 20th century produced groundbreaking new economic thought, but its most influential influence lay in the ideological battle between Keynes and Hayek. But these iconic thinkers shared opposing viewpoints. , but inherited flawed assumptions and common blind spots that were not examined at the root of the differences. In the context of the 21st century, these should be removed so that we can rethink economics once again. We need to clarify our assumptions and make our blind spots visible.”
What Lagarde and Raworth suggest is that there is something that prevents economists from engaging in the self-reflection necessary to solve today's problems.
One big part of the problem is that the economic theory taught in universities is heavily hampered by past worldviews. The other is a kind of agreement not to admit professional mistakes.
And many economists work for and speak for specific institutions, such as large financial companies, that profit from countering new ways of thinking about the economy.
As an economics writer, I am often absorbed in the task of deciphering economists' policies in order to provide a balanced picture. This is very important to me (who only has a literature degree) because I can easily fall apart if I interact with people who have a much richer library than I do.
What I learned along the way is that, yes, economists are very important. Especially now, when we all need to act together. But what we must never do is let those limits dictate where our collective efforts to build a more just world begin and end.