I am often rather scathing about economists, economics and finance in general. So I thought I should come clean and explain.
Economics, to my mind, is much like theology and economists are alarmingly like medieval theologians. Economics and Theology are both systems of thought whose adherents have an unshakable faith that their theology embodies unalterable truths about the nature of the world and human nature. Both have had practitioners who have attempted to systematise their beliefs, to make them complete and internally coherent. Take for example Thomas Aquinas’ Summa Theologica. Or Samuelson and Norrhaus’ Economics.
Both are fantastically erudite but sadly neither are much connected to reality. They share the same essential problem. They start from a series of assumptions which have no basis in fact. This is a problem for me.
Original sin and Predestination, on the one hand, Rational Choice and Perfect Markets on the other. I’m not clear where the advance of one over the other is. Both are fine in private but terrible when made the basis of public policies – in my opinion. Certainly neither provide the basis for predicting a damn thing. Which is more of a problem for economics than theology, since theology doesn’t claim to make predictions, whereas economics frequently does. Personally, I think if you want to live in a theocracy that’s fine. But I don’t like being forced to live in one which myself, which is why I find economists and their priestly followers so irritating.
In the Middle Ages, theologians dreamt up the complex formulas and justifications. The priests then used these to bamboozle people, and collect fees from them for having done so. Today, economists are the theologians. They deal with the pure ideas. Financiers, bankers, financial experts and journalists are the priesthood. Some are hard working believers whose facility with the liturgy affords them a little power, prestige and a living. They are often not very erudite themselves. More practical hands on, rather than theoretical. They know the basic litany and can use all the technical terms fluently. They can say Mass and this makes them, in the eyes of the trusting and gullible, somehow rather powerful and special. They claim to have special knowledge and to be uniquely able to mediate with the powers above. Neither is true.
Their actual power comes from the secular power of the system they are a part of and people’s willingness to believe they should do what the priests tell them. Or else the heavens will fall in. This last ploy was used to great effect by former Treasury Secretary Henry Paulson in 2008. When he needed to admonish those whose faith was wavering, to pass the Holy TARP and avoid God’s wrath. They did, the heavens stayed where they were and this seemed proof enough to many that Paulson must have been, as a colleague of his later claimed, “Doing God’s work.”
And this is where the problem and this analogy come to a head. Theologies and priesthoods get in trouble when they are overtaken by greed. In the case of the Catholic Church it was selling indulgences to the ignorant. For modern finance it was selling securities to the ignorant.
In the 16th century, Pope Leo X took on some large debts in order to build a new Cathedral. One way to pay the debts was to sell indulgences. The sales were successful but got a little out of hand. Eventually indulgences were sold that, for example would excuse a man who had raped the Virgin Mary. Tasteless, untrue and dangerous. This upset a man called Luther and the Reformation got under way.
Economics and finance have, it seems to me, gone the same way. The financial priestly class took on debts much like the Popes’. They sold worthless bits of paper to anyone and everyone as a way to enrich themselves. Sadly for them, these indulgences were eventually found to be worthless and not the guarantees of a wonderful life they were sold as.
All of which slight silliness brings me to my solitary point – we are due a financial reformation – complete with damning to hell, civil unrest and a general crisis of faith in, and fall from grace of, a corrupt and worthless priestly class.
Yep, this is the way it is. One of the interesting ideas from the book 'Fooled by randomness' is the way statically out of a group of fund managers a certain number will always be making the right bets. They themselves think they have been clever but it was simply the throw of the dice that got them where they are. It is like looking at millionaires and seeking out their 'habits' assuming that if you repeat those you too can be rich! Of course they never put the spotlight on all those who followed the same path but failed. All we know about are the successes, there are many more failures than successes out there who simply get forgotten.
Looking to the past to predict the future has no chance of success because of the way events are unexpected. You are also dealing with, not an immutable physical law like gravity, but human nature, herd instinct, greed and panic. I do wish the MSM would not refer to 'the market' as if it was some benign mechanism totally divorced from humans.
Yes, I too hate that use of the word 'market' as if it were one thing to all people. The term enoucrages a spurious respect even fondness for an abstraction. It;s like corporatoins being accorded rights as if they were people. Wrong in every way.
It is tempting to equate the granting of ever higher credit limits with the death-bed bribe that staves off purgatory.
Indeed, all of a sudden, we find ourselves in purgatory, and the credit limits can not go any higher.
Now, is this the fault of the Church (financial institutions) or the God-fearing wretch, e.g. Westerner with a 'maxed out' credit card?
I believe a debt (a personal one) is always to be honoured, but wonder if the duty of the people is what allows the shenanigans of the people with the 'funny money' to continue.