The economy is not a machine, but living people

2024 Author: Seth Attwood | [email protected]. Last modified: 2023-12-16 15:55

Over the past several decades, a cult of economists has been created in the world

Today it is generally accepted that economists (not all, of course, but the most brilliant ones) can see the future and always know what to do. So in the last days of 2016, the Internet was full of predictions about how we will live in 2017, 2025 and even in 2050, what will be oil prices, the yuan and ruble against the dollar, the GDP of the USA, Russia, China, etc.

The main reason for the increased authority of the representatives of this workshop of intellectual workers is, probably, the fact that the economy began to be perceived as an exact science. And intuition has nothing to do with it. A professional economist, as is customary to think, will count everything and give an accurate calculation with three decimal places, accompanying his calculation with mysterious words for the uninitiated, "regression analysis", "complex extrapolation", "variance", "factor analysis", and at the same time - tables, diagrams, graphs. The unsurpassed masterpieces of economic forecasting are the forecasts of the World Bank, the IMF, the "big three" rating agencies, the largest banks in Wall Street, the City of London, and the bodies of the European Union. There are, however, also individual prophets. For example, in America, until recently, Nouriel Roubini, a professor of economics at New York University, ranked first among such individuals.

The magic of numbers works convincingly. A fairly large part of the public believes in these magic numbers, and many build their lives on these numbers. Today they are not just saving something for a rainy day or buying in a store “in reserve”, but “optimizing” and “diversifying” their “portfolio” and making “correct” “investment decisions”. This approach to life on a "scientific" basis is promoted by the media, programs of "financial education of the population" (often financed by grants and loans from the World Bank and other international organizations), and the higher education system. Economics is now taught to students not as a humanitarian discipline, but as an exact science. It was given the name Economics, a clear claim to "accuracy" - by analogy with the natural sciences such as Phisics, Chemics and Mechanics. Judging by the number of formulas and graphs that are saturated with modern textbooks "Economics", then the current economic science is really not inferior to physics, chemistry and mechanics.

Homo economicus

All the dogmas of modern economic science are based on one assumption: it is not homo sapiens that participates in economic activity (production, exchange, distribution and consumption), but homo economicus, an economic man. This is a subject that is devoid of all the prejudices of traditional society. For example, moral norms. Homo economicus is a cross between a machine that responds to the operator's control signals and an animal that is guided by its own unconditioned reflexes. It would be more correct to call an economic man an economic animal. It is assumed that this "animal" must act in economic life, guided by three instincts: pleasure, maximization of income (capital) and fear (economic risks). All other instincts and feelings in economics are redundant and even harmful. An economic man can also be likened to an atom, the trajectory of which can be calculated on the basis of the laws of physics and mechanics. And if so, then, indeed, it is possible to make an accurate forecast of economic development for a month, or a year, or a decade. Just like astronomers calculate solar eclipses or moon phases.

However, here's the bad luck! Despite the titanic efforts of the media, the education system, Nobel laureates in economics, other titled "prophets" and "gurus" from economics, not everyone on our planet can be convinced of the need for rational economic behavior in accordance with the tenets of Economics. For some reason, people want to remain in the position of homo sapiens and refuse to reduce their lives to the three above-mentioned reflexes. This is where the "deviation" arises in the world of economics. The notorious "economic agents" too often do not want to follow the rules of the "market economy". Economic forecasts are made based on the tenets of Economics, only forecasts almost never come true. This explains two features of economic forecasting.

First, the media love to advertise different predictions, but almost never report how well the predictions came true. In this sense, the World Bank and the IMF look more honest against the background of other economic forecasters: they give a forecast for a year, and then almost every month they “adjust” their forecast (such “constantly corrected” forecasts are more likely to come true).

Second, forecasters do not like "short" forecasts, they prefer "long" and "extra-long" predictions. A commercial for 20-30 years (in Russia, former Minister of Economic Development Alexei Ulyukaev was very fond of such economic "astrology"). It is desirable that the forecast period be beyond the expected death of the predictor.

I noticed one peculiarity: with their innermost thoughts about economic "science" titled "gurus" usually begin to share at the end of life. Apparently, in the order of confession, to clear your conscience. I would like to tell you about some of these “gurus”.

Confessions of John Galbraith

The first of these is John Kenneth Galbraith (1908-2006). Taught at California, Harvard and Princeton Universities. He was an advisor to the American presidents John F. Kennedy and Bill Clinton. He combined economic science with diplomatic work - in the 60s he was the US Ambassador to India. In the 70s, together with Z. Brzezinski, E. Toffler and J. Fourastier, he became one of the founders of the Club of Rome. We can say that he is a celestial person who is part of the “global elite”. And here is a fragment from a less “varnished” biography of the famous economic “guru”: “Sometime half a century ago they (economists - V. K.) were wholesale and retail purchased by banks. The beginning of this process was laid by the notorious Manhattan Bank, which later merged into Chase Manhattan, and then into J. P. Morgan-Chase. He established the Department of Economics for John Kenneth Galbraith at Harvard University. Galbraith was one of a whole group of enterprising economists, not to say crooks, who insisted that if bankers were given the right to legally counterfeit money (the author apparently means the issue of money without fully covering it. - V. K.), then it will become the road to the prosperity of the whole society. At that time, Harvard had no particular desire to hire Galbraith at its own expense, but then the Manhattan Bank appeared, waved its money in front of the university authorities, and they bought, or, if you like, sold out. Taking advantage of the prestige of Harvard (which had just been bought and paid for), the bankers did not stop there. In the same easy and informal manner, economics departments were then bought in all other universities and economic schools in the United States "(A. Lezhava. The collapse of" money ", or How to protect savings in a crisis. - M.: Knizhnyi mir, 2010, p..74-75).

And at the age of 95, John Galbraith writes his last book. It can be considered the confession of an economist, or, if you like, a manifesto of an economic dissident. The book is called The Economics of Innocent Fraud: Truth for Our Time. By John Kenneth Galbraith. Boston: Houghton Mifflin, 2004 (Rus. Transl.: JK Galbraith. The Economy of Innocent Deception: The Truth of Our Time. - M.: "Europe", 2009). In it, Galbraith honestly admits that the capitalist model of the economy has completely discredited itself. And this happened back in the 30s of the twentieth century, when the world plunged into an economic depression, from which there was no way out. They tried to hide the squalor of the capitalist model, avoiding the word “capitalism”: “The search for a non-dangerous alternative to the term“capitalism”was started. In the United States, an attempt was made to use the phrase "free enterprise" - it did not take root. Freedom, which implied free decision-making by entrepreneurs, was not persuasive. In Europe, the phrase "social democracy" appeared - a mixture of capitalism and socialism, spiced with compassion. However, in the United States, the word "socialism" evoked rejection in the past (and this rejection remains in the present). In subsequent years, the phrase "new course" began to be used, but still it was too identified with Franklin Delano Roosevelt and his supporters. As a result, the expression "market system" took root in the scientific world, since it had no negative history - however, it had no history at all. One could hardly find a term more devoid of any meaning …"

There are many other sensational confessions in the book. So, according to Galbraith, the distinction between "private" and "public" sectors of the economy is mostly fiction. He also disagrees with the fact that shareholders and directors really play a prominent role in the management of a modern company, and he is critical of the US Federal Reserve. In this book of his, Galbraith spoke not only as an economic, but also as a political dissident (including criticism of the US war in Vietnam and the invasion of Iraq in 2003). Here are just some of the shocking (for mainstream economists) quotes from Galbraith.

№ 1. "Economics is extremely useful as a form of employment for economists."

No. 2. "One of the most important parts of economics is knowing what you don't need to know."

No. 3. "The only function of economic forecasting is to make astrology look more respectable."

No. 4. "Just as war is too important a thing to be entrusted to generals, so the economic crisis is too important to be trusted by economists or 'practitioners'."

Economic forecasts as a branch of astrology …

If John Kenneth Galbraith, who at the end of his life acted as an economic "dissident", worked in the scientific field for most of this life, then another American dissident is far from academic science. He is a practitioner. His name is John Bogle, a legendary investor, founder and former CEO of The Vanguard Group, one of the world's three or four largest investment firms, with multi-trillion dollar assets. A pioneer in mutual funds, a specialist in low-cost investment. In 1999, Fortune magazine named him one of the four "investment giants" of the twentieth century.

In 2004, Time included Bogle in the list of "100 most influential people in the world." Bogle is far from young - in the coming 2017 he should turn 88 years old. When he was already in his ninth decade, he published a book entitled: “Do not believe the numbers! Reflections on Investment Illusions, Capitalism, Mutual Funds, Indexing, Entrepreneurship, Idealism, and Heroes. John Wiley & Sons, 2010). In this book, the "investment giant" shows that all of so-called economics with its mathematical models is a bluff and not harmless; such math does not help a sober investor, but rather bothers his head.

Bogle recalls his time at the Princeton School of Economics in the late 1940s: “In those early days, economics was very conceptual and traditional. Our research included elements of economic theory and philosophical thought, starting with the great philosophers of the 18th century - Adam Smith, John Stuart Mill, John Maynard Keynes, etc. Quantitative analysis by today's standards as such was absent … but with the advent of personal computers and the beginning of the information age numbers began to recklessly rule and rule the economy. What cannot be counted does not seem to matter. I disagree with this and agree with the opinion of Albert Einstein: "Not everything that can be counted matters, and not everything that matters can be counted."

Based on dozens of examples from his own practice, Bogle formulates a general conclusion:

“My main idea is that today in our society, in economics and in finance, we trust numbers too much. Numbers are not reality. At best, they are a pale reflection of reality, at worst, a gross distortion of the realities that we are trying to measure."

Here's another sensational confession:

"Since there are only two fundamental reasons explaining stock returns, it only takes a rudimentary addition and subtraction to see how they shape the investment experience."

Bogle knows well how the smart guys at Wall Street banks make economic predictions. They simply extrapolate current trends into the future and present this digital jumble of reports hundreds of pages long. As a result, crises are always "skipped". Bogle showed this on the example of the crises of 1999-2000. and 2007-2009. “How reasonable is it at all to hope that in the future the stock market will copy its behavior in the past? Don't even hope! " - concludes the financial genius. “Every day I see numbers that lie, if not frankly, then rudely,” - these words of Bogle produced a real shock on Wall Street at one time.

Economic dissident Joseph Stiglitz

Of all the American economic rebels, the youngest is probably 74-year-old Joseph Eugene Stiglitz. He studied at the Massachusetts Institute of Technology, where he received his doctorate. He taught at the universities of Cambridge, Yale, Duke, Stanford, Oxford and Winston, and is now a professor at Columbia University. In 1993-1995, he was a member of the Economic Council under US President Clinton. In 1995-1997 served as Chairman of the Council of Economic Advisers under the President of the United States. In 1997-2000. - Vice President and Chief Economist of the World Bank. Winner of the Nobel Prize in Economics (2001), received "for the analysis of markets with asymmetric information."

Shortly after receiving the Nobel Prize, Stiglitz began to harshly criticize the IMF's policy towards developing countries, questioning all the tenets of the Washington Consensus. It is noteworthy that over the past fifteen years he has opposed liberal reforms in Russia. For Stiglitz, there is no political preference or authority. During the reign of Barack Obama, Stiglitz consistently criticized the economic course of this president, drawing attention to the fact that it is helping to inflate a new financial bubble and prepare a second wave of the financial crisis. Donald Trump barely managed to win the 2016 presidential race, and Joseph Stiglitz has already questioned his ambitious program to create millions of new jobs in America and bring economic growth to 4 percent a year.

Currently, Stiglitz criticizes the unrestricted market, monetarism, and the neoclassical school of economics in general. In his criticism, he places particular emphasis on social inequality inevitably generated by the "market economy". Only the strengthening of the economic role of the state can, if not solve, then at least weaken the acuteness of the problem of social polarization of society. Stiglitz believes that the American economy, compared to other countries, is especially flawed and this inevitably leads to the destruction of the remnants of American democracy (“If the economy is similar to the local [American. - V. K.], - he says, - … then the transformation of economic inequality into political inequality it is almost inevitable, especially if democracy is similar to the local one … if money determines the course of election campaigns, lobbying, etc. ").

Joseph Stiglitz's opinion of economists who are accustomed to forecasting is not much different from that of John Bogle. Such "astrologers" with advanced degrees in economics, without hesitation, project past trends into the future and invariably fall into a mess.

One of the reasons for the prognostic failures of "professional economists", according to Stiglitz, is the "hypothesis of rational economic behavior." In other words, the authors of the forecasts proceed from the assumption that all people have already become homo economicus, and, fortunately, they are not and will never become so. Nevertheless, 99 percent of economic "astrologers" continue to focus the public's attention on tenths and hundredths of a percent of GDP growth in some distant 2025.

British lord on "idiots of scientists"

The last prominent economist in our gallery of dissidents from economics is Robert Jacob Alexander Skidelsky, a British citizen of Russian Jewish descent. Born in Harbin in 1939 to a family that emigrated from Russia during the revolution. Nowadays he is a very prominent figure in the British Isles. Professor of Political Economy at the University of Warwick, Member of the House of Lords, Member of the British Academy. Author of the famous three-volume monograph on John Maynard Keynes (Robert Jacob Alexander Skidelsky. John Maynard Keynes: in 3 vols. - New York: Viking Adult, 1983-2000).

In his latest book on Keynes, Keynes: The Return of the Master. - L.: Allen Lane (UK) and Cambridge, MA: PublicAffairs, 2009, Robert Skidelsky raised serious concerns about the state of economics. and teaching economics at universities in the Old and New Worlds. He is especially worried that a disproportionate amount of time is devoted to teaching mathematics in economics departments: “It happens so,” Skidelsky writes, “that students of economics departments of leading universities in Great Britain or the United States receive their diploma with honors without having read a single line of Adam Smith or Marx, Mill. or Keynes, Schumpeter or Hayek. Usually, in the course of their studies, they also do not have time to connect micro- and macroeconomic analysis with the broad context of economic science, political economy, etc. … No one denies the contribution of mathematics and statistics to the formation of rigorous scientific thinking … At the same time, modern curricula in economics are overloaded with mathematical disciplines, the conceptual limitations of which no one realizes."

In the last days of 2016, an article by Robert Skidelsky “Economists versus Economics” appeared, which greatly stirred up the stagnant swamp of “professional economists”. The article states that the British government and the Bank of England are in complete confusion. They see no real ways to get out of the recession that the economy got into after the crisis of 2007-2009. The recession cannot be overcome, and all the signs of a second wave of the financial crisis are already there. The British authorities are throwing themselves into monetarism, then into Keynesianism, but there is no sense. The country's economic crisis, Skidelsky argues, is at least in part due to the crisis in modern economics and economic education. The author protests against the “mechanistic” approach to understanding economics: “For economists, the machine is the favorite symbol of economics. The famous American economist Irving Fisher even built a complex hydraulic machine with sediments and levers that allowed him to visually demonstrate the adaptation of equilibrium market prices to changes in supply and demand. If you are convinced that the economy works like a machine, then you will most likely begin to view economic problems as mathematical problems. And since the economy is not a machine, but living people (besides, not homo economicus), the excessive enthusiasm of future economists with mathematics ultimately hurts - it makes it difficult to understand the economy as a living organism.

As Robert Skidelsky is convinced, a one-sided and very narrow approach to the training of economists at universities is becoming the main threat to the economic well-being of society: “Modern professional economists study practically nothing but economics. They don't even read classics in their own discipline. They learn about the history of economics, if at all, from tables of data. Philosophy, which could explain to them the limitations of the economic method, is a closed book for them. Mathematics, demanding and seductive, completely overshadowed their intellectual horizons. Economists are the idiots savants of our time."