What is your profession?

Some can answer that question with pride — nurse, doctor, social worker,  manager, psychologist.

Me? I’m a doctor — but not the kind that helps people. In fact,  the opposite. Because, I am an economist with a Ph.D.   And my profession has done the world enormous damage.

We (a majority of us) sold the world the criminally-outrageous notion that unregulated free markets makes the world wealthy. True, a handful of greedy persons in the banking and finance industry distorted and misused this principle  for their own purposes. But the legitimacy for their actions, and the policies politicians embraced, came from the once-respected discipline of economics. Most of the world bought the free-market notion, and the resulting global crisis is like a fierce storm, spreading from America to all parts of the world, including Asia. IMF economists regularly adjust their global forecast downward, without embarrassment, scrapping what they predicted just weeks earlier.

But the real failure of economic science — some economics departments actually call themselves that, or did once —  is not its bankrupt predictions, nor its catastrophic free-market ideology. It is the utter inability of economics to find innovative policies to lead the world out of the black hole economics has led it into. 

Last year Newsweek ran an article presenting ‘crisis policy’ ideas from each of seven Nobel laureates in Economics. I found almost nothing truly creative in any of them. None of them addressed one core issue: The collapse of trust and confidence, in banks, financial markets and in one another. None of them even began to grapple with the other core issue: Though the supply of money and credit has grown rapidly, owing to Central Banks, the money is stagnating in bank accounts and is doing no-one any good, as a result. 

So, when Business Week asks, in its latest issue, “Hey, Economics Geniuses! What Happened?” — I feel both anger and agreement: Anger at my profession, agreement with the mocking tone of the article. 

“Seven decades after the Depression,” Economics Editor Peter Coy writes (himself, an economist), “economists still haven’t reached consensus on its lessons. The debate has only intensified in recent weeks.” Or, as George Bernard Shaw once said, line up all the economists in the world, in a straight line, and they still will not reach a conclusion. 

Among Coy’s not-so-coy claims about economists, all of which are true: 
• “They claim a precision that neither their raw material nor their skill warrants”; 
• “Too many assume that people behave like the mythical economic man who is hyperrational and omniscient”.

And, Coy should have added,
• Economists crunch numbers in their offices, believing in their truth, rather than talk to people in offices, factories and shopping malls, which is where the real truth lies. 

For 40 years, I committed all the above sins, and only now, after a decade of working with companies and managers in several countries, do I realize how little I really understood about how the world works, and how flawed were the theories I taught.

Keynes built a powerful theory that showed the world how to cure a Depression. He published it in 1936, in the midst of the Depression. But by the time it was understood and applied, the Depression was long over. I believe this was a bitter disappointment for him. 

“Perhaps out of the (current) failure (of economics) will emerge a better macroeconomics profession,”  Coy writes.

Sure. But by then, it will be too late for the new theories to do any good, to help anybody, to reduce unemployment or limit suffering, in the current crisis; a cynic might even claim that perhaps, those theories will simply sow the seeds of the next crisis.