Who let the economist out?

Why did God create economists? “To make weather forecasters look great.” Jokes apart, the jury is still out on whether economists have made any significant and meaningful contribution towards greater common good, especially whether they have really been able to foresee or forestall economic crises. As they say, most of the tom-tommed economists have been so ‘successful’ at predicting financial crises that they have forecast 11 of the past eight financial crises in the past 40 years.

What’s funnier is that despite all the mighty mishaps that wrecked economies, businesses and, most importantly, lives of billions of common people across the world, economists command immense clout in policy-making worldwide and many of their ‘chic’ and controversial decisions continue to wreak socio-economic havoc.

This is not to say all economists are fake and all of economics is hokum. From Adam Smith, Karl Marx and John Maynard Keynes to Amartya Sen and Thomas Piketty, there have been an eclectic mix of economists whose ideas have changed the world in unimaginable ways,helping lift millions out of poverty. But not many of them won awards or went on to chair panels that created policies. In fact, a lot of them are still underrated and most of the overrated and popular economists are, sadly, doing counterproductive work that create economic disparity and inequality in society.

Popular among them are the champions of the free market. As Binyamin Appelbaum, an editorial board member of The New York Times, writes in his well-timed and well-researched new book, The Economists’ Hour: How the False Prophets of Free Markets Fractured Our Society , “the triumph of free-market economics is sometimes illustrated by a satellite image of the Korean peninsula at night, the southern half illuminated by electricity, the northern half black as the surrounding ocean.”

Which means, lying adjacent to all the glossy prose we read about the success of the free market in bringing prosperity to its benefactors is the story of a dark continent of extreme inequalities and poverty that nobody really cares about.

Looking at contradictions

Appelbaum’s book looks at such contradictions in detail, especially how countries and their policy-makers took economists too seriously, setting aside welfare agendas and abetting what Marx would have called primitive accumulation of capital. In three parts, peppered with juicy anecdotes, enchanting numbers and enigmatic characters (celebrity economists and policy-makers included), Appelbaum tells the story of how America, and many other countries, that used and abused the idea of market economy and ended up as losers of sorts, especially after the financial meltdown of 2008-09 and beyond.

But the book is not a lament manual. It is actually a racy read on how economists and economics moved the world, especially the US, commanding great influence on spheres such as politics and policy-making today. In fact, economists did not command such clout always in history, Appelbaum observes. Economists became policy-makers much later in their evolutionary cycle of life. The book begins by tracing periods when economists were really looked down upon by legislators and policy-makers. Appelbaum quotes (former) US Fed chairman William McChesney Martin, who was a stockbroker with a “low opinion of the species (economists). We have fifty econometricians working for us at the Fed,” he told a visitor. “They are all located in the basement of this building, and there is a reason why they are there.”

But soon things have changed, especially between the World War II and the 1970s. Economists who believed in “the power and the glory of markets were on the cusp of a rise to influence that transformed the business of government, the conduct of business, and, as a result, the patterns of everyday life,” writes Appelbaum.

But the change was not in favour of collective good, as history has proved. Economists’ power in the markets introduced models, products and policies that were so complex, absurd and even inhuman that the whole discipline of economics started resembling a Kafkaesque tale in the 1990s and 2000s, which obviously led to the inevitable collapse of the late 2000s.

‘Awesome invention’

That said, Appelbaum doesn’t discredit the importance of the market economy. He says it remains one of humankind’s most awesome inventions, a “powerful machine” for creating wealth. “But the measure of a society is the quality of life at the bottom of the pyramid, not the top,” he reasons. According to Appelbaum, one of the most important factors that actually stalled collective progress is “the wilful indifference to the distribution of prosperity over the last half century”.

Fair distribution of wealth powered liberal democracy in the past, but now thanks to how the false prophets of free market have punctured that very idea and paved the way for unbridled accumulation of wealth the concept of liberal democracy is now being tested by “nationalist demagogues, as it was in the 1930s.” If you are an observer of contemporary socio-political events, especially what’s happening in countries such as India, Japan or parts of Europe, you’d get the drift.

Which is why Appelbaum begins a crucial chapter, ‘Representation Without Taxation’, quoting John Kenneth Galbraith, who said, “What is called sound economics is very often what mirrors the needs of the respectably affluent.” In fact, the recent history of economics would vouch this statement even more emphatically. The respectable affluent still commands immense clout in economic policy-making across the globe, especially in emerging and developing countries like India and their policies are transforming lives, often the wrong way.

Appelbaum writes with clinical precision. His prose is pristine, witty and matter of fact. One can compare him with a Michael Lewis or a Bryan Burrough. Appelbaum’s book forces us to take a balanced look at market economics. Will it help make economists look better than weather forecasters? That’s a billion dollar question.

COMMENT NOW