Criticizing economists

Following is a quote from James K Galbraith at the start of the introduction to the book The End of Growth: Adapting to our New Economic Reality by Richard Heinberg and published in 2011 by New Society Publishers.  (Apparently James K. Galbraith is the son of John Kenneth Galbraith)

When I read this quote I thought this book has to be interesting and it is.  Hopefully there will be more from this book in later posts.

Leading active members of today’s economics profession … have formed themselves into a kind of Politburo for correct economic thinking.  As a general rule – as one might generally expect from a gentleman’s club – this has placed them on the wrong side of every important policy issue, and not just recently but for decades.   They predict disaster where none occurs.  They deny the possibility of events that then happen ….  They oppose the most basic, decent and sensible reforms, while offering placebos instead.    They are always surprised when something untoward (like a recession) actually occurs.  And when  finally they sense that some position cannot be sustained, they do not reexamine  their ideas.  They do not consider the possibility of flaw in logic or theory.  Rather, they simply change the subject.   No one loses face, in this club, for having been wrong.  No one is dis-invited from presenting papers at later annual meetings.  And still less is any from the outside invited in.

 

Here are links to a couple of my own criticisms of economists: one, two.

 

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Making wise those who need wisdom

Here are some words of wisdom from John Kenneth Galbraith from his book The Great Crash 1929  (A paperback, written in 1954 and reprinted in 1997) pages 24 and 25.

Galbraith was writing about 1929 and I believe our current situation is quite different and probably worse.  However, the following thoughts may also apply to us.

Purely in retrospect it is easy to see how 1919 was destined to be a year to remember. … No one, wise or unwise, knew or now knows when depressions are due or overdue.

… the position of the people who had at least nominal responsibility for what was going on was a complex one.  One of the oldest puzzles of politics is who is to regulate the regulators.  But an equally baffling problem, which has never received the attention it deserves, is who is to make wise those who are required to have wisdom.

Some of those in positions of authority wanted the boom to continue.  They were making money out of it, and they may have had an intimation of the personal disaster which awaited them when the boom came to an end.  But there were also some who saw, however dimly, that a wild speculation was in progress and that something should be done.  For these people, however, every proposal to act raised the same intractable problem.  The consequences of successful action seemed almost as terrible as the consequences of inaction , and they could be more horrible for those who took the action.

…. The eventual disaster also had the inestimable advantage of allowing a few more days, weeks, or months of life.

To this I would add the observation that most of us most of the time think and act in our own short -term interests as opposed to our own long-term interests or the interests of our community as a whole.

Stock market or lottery?

The Buttonwood columnist for The Economist claims the stock market  “is not supposed to be a sophisticated version of the National Lottery.”

It may be that a lot of people get sucked into the lottery features of the stock market even though they may still believe the propaganda about participating in the economic growth of our society.  I am amazed at the number of (educated) people who don’t understand financial matters and who appear to not want to understand them.

Following is a quote from  page 49 of John Kenneth Galbraith’s The Great Crash 1929.  Investment trusts were a vehicle through which people could purchase a range of stocks and let an “expert” manage their money – something similar mutual funds and hedge funds.

Historians have told with wonder of one of the promotions at the time of the South Sea Bubble.  It was “For and undertaking which shall in due time be revealed.” The stock is said to have sold exceedingly well.  As promotions the investment trusts were, on the record, more wonderful.  They were undertakings the nature which was never to be revealed, and their stock also sold exceedingly well.

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