Tuesday, November 4, 2008

Economics is disappointing

I've written a few times before (for example, here) about the limitations of economics, especially as it pertains to the field's attempts to present itself as a science. I'm always reluctant to do so, because I actually have a great admiration for it as a discipline, and I believe that it is worthwhile as it works to understand the big economic forces that govern so much of our lives.

But there is a disturbing certainty in which its practitioners are steeped, and this attitude, coupled with its arcane nature, has infected the general populace. Many people are convinced that economists are "right" in the way that a physicist would be, despite the gigantic gulfs within the field. It's difficult to understand the reliance on economics when it clearly divides into camps that match up with political philosophies.

Dean Baker is someone I've quoted in the past, an economist who, in his blog Beat The Press, takes on the media, contending with them over their reliance on "accepted wisdom" that isn't accepted at all. He has been particularly strong in pointing out that pretty much every media outlet has bought into the idea that the bursting of the housing bubble was unpredictable, which is, of course, patently untrue. There were people, granted not enough, who knew that the systemic overvaluation of real estate was going to have dire consequences for the nation, but received very little attention.

In particular, as Baker points out in a recent post, no "reputable" economist dared point out the obvious, fearing for their careers. "On the other hand, completely missing the largest housing bubble in the history of the world carries no consequences for those whose job it was to recognize such risks to the economy." He goes on to say that those in the profession who failed at their jobs won't face censure or job loss; I would say that, based on what I've seen, they are still the go-to guys and gals when the media tries to "make sense" of what's going on.

Of course, Baker is still a member of the profession, so he doesn't always climb out of the well. Consider another recent post about saving, as he comments on a Washington Post article about how we might fight the coming recession:
One of the comments asserts that "some economists think we need to encourage more saving, not less, and that people hoarding stimulus cash isn't necessarily a bad thing." It is unlikely that any economists think that we should be encouraging saving during a recession. More saving during a recession will reduce demand, leading to a steeper downturn and more unemployment. No economist is identified as holding the position attributed to "some economists."
Here's why the average American needs to stop blindly trusting economists, because what may seem like the consensus thing to do is profoundly irresponsible in the specific. I understand that "the advice" is for us to go out and spend to keep the doors of our stores open (we can save Circuit City, yes we can), and in that way preserve jobs.

But, if you're one of the massively large number of Americans who might lose their jobs and has been contributing to the recent negative consumer saving rate, then the stupidest thing you could do would be to spend every paycheck down to the last penny. Asking insecure citizens to take on greater risk on the off chance that CEOs will take their money and hire other Americans (instead of more offshoring or fatter golden parachutes) is a reckless request, and hardly fits into our new mode of national sacrifice (that no one has actually articulated or asked for).

Maybe, if you're a tenured economist, you can spend down whatever savings you already have, but it seems very poor advice for anyone who actually has to contend with the rough tides of our financial situation.

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