Let’s Rescind The Nobel Prize For Economics
You may have noticed that the economy has gone to hell in a handbasket, in double time. Unemployment is way up, prospects are way down, and the news seems to get worse every day. And it’s not just here, it’s all over the world.
So the question is: why didn’t the professional economists of the day see this train wreck coming? They are highly educated, well trained, and have access to teams of analysts, captains of industry, and leaders of government. They’re the ones who are supposed to be looking after these things for us. And what are they doing about it? And how can we the people ever trust them again? Perhaps the sad truth is that our modern day economists are really no better than the shamans, witch doctors, and snake oil salesmen of the past. Scary thought there. In any event, it seems clear that economists have very seriously dropped the ball on this one, and it’s going to cost us all plenty.
Economics is also called “the dismal science”. As it turns out, even that might be putting it generously. We have to ask if it’s a “science” at all, of any description, after so completely and utterly missing the mark.
Here then is a proposal: let’s rescind the Nobel Prize for economics. Just drop it, cut it out, throw it away. The main reason for this is on straight academic grounds, namely, that we can’t be sure that economics really does the job, let alone actually prove that it promotes the betterment of humankind. Secondly, let’s mete out some punishment to the experts who are supposed to watch over matters economic but failed so miserably.
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It is not only that the economists didn’t see this coming – it is worse than that. They still haven’t worked out why it happened.
Green shoots, a return to trend growth??
Only one chart is required to understand why this happened, why we are not ever returning to trend growth and why a depression and probably the collapse of the USA is eminent. This is the chart that measures total debt as a percentage of GDP.
Th story of economic growth of the last 40 years – since the abolition of the gold standard in 1971 has been that the chart that measures debt as a percentage of GDP has been growing exponentially.
Another way of saying this is that economic growth has required debt to grow faster than the economy.
The justification for this growing debt has been that is is underpinned by rising asset prices. Right?
The trajectory of the graph is the typical hockey stick that characterises all exponential growth. It is becoming more vertical. In other words the amount of new debt required to generate one more dollar of economic growth is increasing rapidly. In 1960 one new dollar of debt produced 55 cents of new economic growth – as measured by the GDP – one new dollar of debt in 2007 generated 20 cents of growth.
The only way the USA can return to “trend” growth is if the rise of new debt returns to “trend” growth rates. This is clearly not going to happen. The house price, commercial property and stock market bubbles that “justified” this debt are all collapsing and have further to fall.
I could throw in another 10 charts or so to demonstrate a few more points that would make this argument clearer but I cant show them in this post an they are essentially unnecessary.
Why a depression? Do yourself a favour and look up the chart I have been referring to – one that goes back to 1870 and takes in the last 2 depressions.
When I look at the Australian chart – which is better than the USA – the debt to GDP ratio now id 3.4 times as large as it was in 1929 – 340%!!.
We in Australia think we have escaped the meltdown – our house prices are still rising thanks to short term incentives by the government to use the “go to” short term solution that has underpinned this delusion. We are still living in delusion land.
The basic mathematics of the model of growth that has existed since 1971 don’t stack up. A return to trend growth using the “old economic model” will require asset prices not only return to their old levels but continue to increase at a the same rate of the past. Dream on. It is all over, The USA is about to enter the same demographic trend that Japan is going through.
I will leave at this
It’s not a real Nobel Prize anyway. See http://leiterreports.typepad.com/blog/2005/10/why_is_there_a_.html .
The collision of greed, incompetency, dropping the safeguards and the dumbing of America has happened. I personally do not feel secure knowing that a “NON FEDERAL” agency, The Federal Reserve is not a branch of the Federal Government. International Bankers operating our money.
Right on! I know that its also about the greedy financiers, incompetent government watchdogs, and so on and on. But its economists that advise them all. Real scientists warn us about global warming. I have no idea what economists do.
That’s not very practical. What do you plan to do? Start a petition?
I didn’t know there was a Noble prize for economists. It’s hard to see why they should have one. I always thought it was for people who do things like great inventions or find cures for diseases. Economists have never done anything for me.
What a good idea!
It’s not all the economist’s fault. There’s also the greedy financiers and the people in government who are supposed to watch over the whole thing. And the politicians too.