Economists: what are they good for? Not a heck of a lot

By ALEX MILLMOW Wednesday 11 October 2000

Australia's currency crisis has been met with a deafening silence from within the ranks of academic economics, a community of more than 1000 scholars scattered cross 37 university departments.

Not a peep out of them even though the dollar's demise has surely been a significant economic event. Nothing either on what sparked the dollar's demise, namely, a growing perception internationally that we are an "old economy".

It's all rather puzzling really, given that a floating exchange rate is an example of conventional economics. So, too, is much of the architecture that encases the Australian economy the product of a 15-year economic reform program.

While many think it is not proper academic protocol to speak out on matters of public importance, the gravity of heading towards banana republicdom surely invites some reassuring comment from the academic priests that it ain't so.

Even John Stone, former secretary of the Treasury, who was opposed to the float of the dollar and who is also governed by the dictate of never commenting on matters of public policy, has come out of the woodwork to bemoan that perhaps one lesson of the dollar's demise is that we would "do well to pay less attention to economic theories and concentrate on what works".

There is an old story that went: people would complain that, if you put 10 economists together, you would get 11 points of view, if Keynes was on the panel. These days, however, you would be hard-pressed getting one opinion from 10 economists about anything.

Compare that with business economists who would inundate you with interest-rate forecasts and the like. In contrast to their academic counterparts, business economists wear their forecasts on their sleeve; and suffer from it when their crystal-ball gazing goes awry.

You have to have some gall and a tough hide to be a business economist. In that respect, they could not be more different from their academic cousins.

As Daniel Klein argues in an article entitled "What do academic economists contribute?", basically, they are a law unto themselves.The article appeared in the latest issue of Policy.

It is quite remarkable how academic economists - except for a few such as Paul Krugman - have retreated from the world. For the Australian branch, it is all the more ironic in that they were foremost in encouraging this country to direct itself more towards the world by eschewing protection.

As Klein points out, only a few of the most influential American branch of the congregation do work related to policy. Klein considers economists members of an exclusive careerist club that has developed its own set of rules, conventions and customs by which they prosper and survive within the cosseted academy.

What was once a science with a public orientation has turned in upon itself. Not only does it no longer contribute much to society, but media comment or writing non-technical articles is likely to be dismissed as policy advocacy unworthy of a scholar.

Then there is the economist's fixation on model-building. This they have raised to an art form, with practitioners bent upon evaluating each other's work to the exclusion of all else.

Economists, argues Klein, perform more for each other than for the public, who, nonetheless, fund the bulk of their salaries. This unhealthy subversion of a discipline is being passed down to the next generation of scholars. For instance, a survey of US economic postgraduates found that only 3 per cent of them felt that a knowledge of the how the economy actually operated was "highly important".

Klein believes that this inward-looking approach and refusal to engage the public in any way, shape or form, means that "club" economists in America and in this country are losing touch with the basics.

Economic journalists, the meat in the sandwich between the two halves of economics, agree that academic economists bear little relation to their business-headed cousins and live in a fantasy land of the purely theoretical. Indeed there is almost a state of apartheid between the two branches. Each branch has developed separately and neither has much communication with the other.

Some might think academic economists have rarely anything to say that is newsworthy.That may be true. However, their ideas can have a formative influence in shaping public policy on the economic reform agenda. When economists do venture out into the media spotlight, they invariably come across as hopeless communicators prefacing their monologues with "Well, I have constructed a model ...".

University economists' silence on matters topical can be further explained by their disdain for what is sometimes called "up and down economics".

This, they contend, is basically just reading the economic tea leaves and deciphering the latest set of economic numbers. Academic economists find this sort of number crunching "stupefyingly boring", as Paul Krugman puts it.

They are equally aghast that most think this is what economics is basically all about.

They resent headline economics because it is too simple. That is, forecasting the macro-economy using a set of simplified assumptions, while it might serve as a good approximation of where the economy is headed, leaves the academic brethren lamenting the lack of rigor and elegance.

They also deplore business economists' tendency to dispense with considerations of multi-causal phenomena affecting the variable under question and the way they brush off qualms about using long-run guides to predict results in the short run in order to crunch out a forecast. On this, at least, the academic priests have a point and the unforetold plight of the Aussie dollar is a sobering example.

Alex Millmow lectures in economics at Charles Sturt University.

http://www.theage.com.au/bus/20001011/A43092-2000Oct10.html

-- Martin Thompson (mthom1927@aol.com), October 10, 2000

Answers

A economist who was speaking at a conference I attended about 10 years ago told this joke:

What do call it when 10,000 economists jump in the ocean and drown?

Answer" A start!

-- K (infosurf@yahoo.com), October 11, 2000.