A moderate Harvard economist Dani Rodrik said, " ... [E]conomists are an arrogant bunch, with very little to be arrogant about. ... As social scientists, economists have neither the ability of physicists to fully explain the phenomena around us, nor the expertise of physicians to prescribe effective cures when things go wrong."
Physics is a science; real-world economics is not. Economists suffer from "physics envy." They are "wannabe scientists." For wannabes, ends often justify means; in that case, they could be very dangerous, proclaiming snake oil as a panacea.
The only point of similarity is as follows. Physics underwent a cardinal makeover a century ago. Due to multiplying perils and emerging fundamental uncertainty, to be ubiquitous in this century, economics must have such a makeover now. Economics still should allocate resources efficiently, but not to maximize the short-term welfare of individuals - rather, to avoid catastrophes and to contribute to long-term sustainable survival of mankind in an acceptable state. And not under scarcity alone - rather under radical uncertainty and scarcity, with uncertainty perhaps playing a greater role.
Last week I spent several days in a hospital and had ample time to ponder upon the Rodrik's statement. What are the main differences between physicians and "mainstream" economists, if any?
The supreme commandment of physicians is, "First, do no harm." Quite to the contrary, economists are ready to sacrifice a lot. A lot of other people, of course. Just ask more than 25 million of fully and partially unemployed. (Protected by their tenures, economists can safely recommend "creative destruction" and unbridled globalization.)
Physicians try to beware of unintended consequences as far forward as possible. They follow the health through scores of years. In contrast, since economists are unable to handle radical uncertainty, economics is a short-term discipline, a "one-day wonder." It can only "rearrange the chairs on the deck of the Titanic."
Physicians do not try to construct the theory of equilibrium of quicksand. Instead they go up or down the stream and build a bridge across the river - as sturdy as possible. For economists, achieving equilibrium of quicksand is the most worthy goal. Nec plus ultra.
Both physicians and economists base their techniques on thousands of years of experience. But the mainstream economists do not listen to folk wisdom of Mr. Micawber. Instead, they base their approach on untested, utopian, often absurd assumptions.
Physicians do not intentionally create cancer. Financial economists helped to create the financial industry, that cancer tumor on our society. A tumor that sucks out our vital juices, converts them into pure poison, and gets bigger and bigger in the process.
According to Brad Delong and Stephen Cohen,
The country shifted some 7 percent of its GDP out of manufacturing and added some 7 percent of GDP in the expansion of finance, insurance, and real estate transactions ... [E]ngineering practice and innovative technological development do move and emerge elsewhere as you move from real engineering ... into financial engineering. ... It also means that you must create more and more debt so that other nations have the dollars to accumulate and not balance their trade - and yours.
That means that finance already overtook manufacturing, almost one and a half times. But the worst is yet to come: its main function is not anymore efficient allocation of resources to deserving corporations or redistribution of risk. It is the obscene enrichment of its executives, dealmakers, traders, and everybody else.
That robbery was done by taking "sky is the limit" risks with other people's money, coming due long-term, too, years after they leave the institution. Even worse, the process may create enormous risks of "naked" obligations; those risks may go up (as we see now) to trillions of dollars. (The London unit of AIG had about 300 people. Taking bets on non-existing assets, it almost sank the parent company. The average annual income of each of these 300 people was more than a million dollars.)
Just the annual bonuses, and just of the Wall Street, amount now to 150 billion dollars. Think about that - the taxpayers lay out 780 billion dollars as a stimulus to revive the economy. We add almost a trillion to our national debt, and our children and grandchildren will have to pay it. And about one fifth of that enormous amount ends in the pockets of a handful of people, downtown New York City. Who then buy politicians, wholesale and retail, to protect their gains.
As Clive Dilnot characterizes it, we moved from "wealth creation" to "wealth extraction." Each time it launders our shirts, the industry cuts out of it a big piece of cloth.
In 2007, the richest 1 percent of Americans, a big share of them in finance, received 23.5 percent of the nation's income. Almost one quarter of national income. That repeats the record (23.9 percent) of 1928 -- the year before the Great Depression. Remember what happened then? (By the late 1970s, the top 1 percent share was down to 9 percent. But then came "the Reagan revolution.")
True, the finance industry provides a lot of GDP and taxes. But these benefits are trickle-down from a cancer tumor. Nauseating, isn't it? Yet New York City, the state of New York, and the country as a whole happily wallow in them and declare them to be Holy Water. Ugh, faugh, fie, ew, gross, and yak! (I do not know any more polite English expressions of disgust.)
Physicians do not intentionally create intensive bleeding. Intensive bleeding of factories and jobs and money - that's what are unavoidable results of dangerous recommendations of the economists. In their beloved unbridled globalization the USA is the dupe of last resort. "Free trade" above all - when the rest of the world is protectionist, and its greatest wish is that we continue each year to get all Nobel prizes in economics.
A cancer patient with intensive bleeding? Plus a President (of course, of the Medical Association) who might turn out to be one of the worst in history? Not a good medical prognosis, I am afraid.
Physicians do not intentionally limit their models of the human organism by excluding those of its functions that they do not sufficiently understand. Quite to the contrary, that's what economists do all the time. To be able to construct their elegant (the fashionable word is "rigorous") mathematical models and to teach without being asked awkward questions, they assume an autonomous economy, cutting off zillions of its vital interactions with the society and its institutions, and with the real world in general. That's why they want "free market." Free from what? From constraints that democracy imposes on greed? From the need of retaining middle class? From the need of preserving the "arsenal of democracy" that enabled this country to win two "hot" and one "cold" world war?
Good physicians do not follow the prescription of Milton Friedman to maximize short-term profit. Whenever possible, they choose the least intrusive, costly, and risky treatments.
Of course, even not all "mainstream" economists are bad, and not all physicians are good. Nobody is perfect; nothing is perfect; medicine makes some big "oops!" too.
But, were I not a professional who also constructs pretty good bridges across rivers, I would like to be a physician.
Everybody knows the story about a genie let out of a bottle, who grants his savior a wish -- but warns him, when asking for fulfillment of that wish, not to evoke in his mind the picture of a monkey sitting on a tree branch and making faces.
Similarly, when one thinks about the benefits coming from the finance industry, I implore him - don't even dare to evoke in your mind the picture of a trickle-down from a cancer tumor! Especially before meals. Bon appetite, friends.
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