Fixing Responsibility for Economic Blunders - Essay Example

Fixing Responsibility for Economic Blunders The economy is on the great slide once again across the globe. Before, it started, there was absolutely no inkling to anybody of what was coming and everybody was painting a rosy picture of the health of economy in the days to come. Interest rate was falling; stocks were rising, with all the major indices of the world making new highs. But in the end, everything proved to be nothing but a huge bubble, which burst and blown away many innocents with it. Who is to blame for all this? I fully agree with Simon Jenkins, when he says “conman stuffed with cash” to these professionals of economics, who are always in the lime light during the period of economic boom period. These professionals claim to be scientists and also claim to have mastered the science of scarce resource allocation to satisfy the unlimited needs of humanity. These professionals also claim to have mastered the human behavior. But are they really scientists and whether economics is really a science. Economics was defined as “Science of Wealth Creation” by Adam Smith, the father of economics as well as the economics of early days like J.E. Cairnes, J. B. Say, and F. A. Walker (http://www.newagepublishers.com/samplechapter/001283.pdf). According to these economists, economics was a science that dealt with the ways in which a nation acquires wealth. This definition placed economics as a stream of knowledge devoid of any human face. To provide a social and moral face to this stream of knowledge the next generation of economists like Marshall, Robbins and Samuelson gave a more comprehensive and humane definition of economics. They defined economics as a branch of knowledge which is “on the one side a study of wealth; and on the other, and more important side, a part of the study of man.” (http://www.newagepublishers.com/samplechapter/001283.pdf). Another very famous definition of economics comes from a very popular economist of modern age – Robbins. He defined economics as science of optimum allocation of scarce resources to satisfy the infinite needs. His definition of economics tried to distance it from the moral or ethical issues to make it a scientific discipline. Today, his definition is the most acceptable definition of economics and modern day economists do not consider it anything but a scientific subject. They have learnt and applied many exotic mathematics, be it differential equations in many variables or abstract concepts of set theory and linear algebra into different problems and situations of economic sense. They extract some results and then claim how economics is a science and that it draws conclusions by applying mathematically rigorous theories and complex and exotic mathematical equations. They will go ahead and create models and apply simulations to arrive at optimum course of economic policies. It is not at all uncommon to find economists using the concepts like LeChteliers Principle and that of Entropy, which is originally from Chemistry and Thermodynamics into the field of Economics (Chen Y. W. and Huang T. S., 2009) to pretend as if Economics is no less a science as compared to the established streams of science. They prove lucky many times and their theories and models seem to work well during the cycles of economic upturns. So where lays the difference and why I agree with Simons Jenkins when he dubs economists as disciples of “false science”. This is because a stream of knowledge does not qualify to be called “science” just because its practitioners can put some half baked theories on the basis of some dubious assumptions and manipulation of sophisticated mathematical concepts and procedures to deduce some results that seem to work in some limited geographical or time domains and fail more often than succeed. Also, when the theories fail then the consequences are devastating for a huge innocent population and then economists simply do not own the responsibilities of these failures and simply try to remain either silent or pass the buck to the gullible political class. This is not so in established stream of sciences like chemistry, physics, thermodynamics etc. The theories in those disciplines have in their foundation much more valid assumptions and the theories are much more rationale and broad based. Their also, many times theories fail as newer information come to light altering the underlying assumptions. But then the practitioners of these streams of science willingly welcome and accept these changes. In many instances, the scientist putting forward a theory himself provides ample hints of possible evolution on the theory being proposed by him in light of the possible information that will come in future and many times they have proved correct. Also, in the realm of established streams of science, the theories are tested by suitable experimentation which is hardly ever done in economics. Also, the consequences of failure in scientific theories never had so devastating impact on humanity than the failures of economic theories. While science accepts that its theories may fail in the domains where the underlying assumptions are no more valid and owns the responsibility for failures, this is hardly the case with economics and therefore, I do not accept economics as a branch of science, in stead to me it remains an stream of humanity, dealing with economic activities of individuals, societies, companies and countries, each with their vested interest and charting their independent path to suit their agenda. So there is a need for different theories so accommodate behavior of different set of peoples. It is useful to examine how economists have kept failing in domains of their expertise and that they never owned their follies. The proponents of free market economies asserted that market is supreme and therefore, free market economy is the ultimate medicine of all economic ills. They will show this by using many equations like that of supply – demand, terminal utility etc. However, the free market economies were created unhealthy competition, cartelization, labor force exploitation etc. forcing the Governments to respond by appropriate regulatory measures and thereby limiting the freedom of the participants of free market economies. This clearly shows that there are shortcomings in economic theories propagating free market economies and asserting the supremacy of markets, but then have we ever heard of an the proponents of free market economy coming ahead and accepting the fallacy in the theory supporting free market economy! Surprisingly, I have never heard anything like that. Another example has been given by Simon Jenkins in his article titled “When the going gets tough, economists go very quite”, published in The Guardian on Wednesday July 9, 2008. In this article he has talked how even the practitioner of Keynesian economics have also failed. This theory puts emphasis on demand side management, like perking up demand by injecting stimuli in the economy by the Government or central banks to tackle recession. However, even the measures suggested by the Keynesian economists have also led to stagflation, a situation in which inflation rises without any growth in the economies and therefore, hurts the common man. Therefore, this is another example of failure of an economic theory and no body to take the responsibility from the fraternity of economists. So how come one can accept economics as science only to give legitimacy for implementation of a theory by claiming it to be a scientific theory and with no body to take the blame when the theory fails causing a great societal devastation. To sum up, I do agree with Simon Jenkins, when he says economics as “false science”. References: Chen Y. W. and Huang T. S., “Interfaces with Other Disciplines The LeChatelier principle in a DEA model”, European Journal of Operational Research 197 (2009) 371–373 Jenkins S., “When the going gets tough, economists go very quite”, The Guardian, Wednesday July 9, 2008 http://www.newagepublishers.com/samplechapter/001283.pdf Read More