There have been lots of reactions about the role of economists to the recent world financial crisis; inflation, food hike, increase of poverty rate etc. I thought about it, when I was reading this story of John Reed as Citicorp CEO from the book "Origin of Wealth", that economists do not efficiently represent the world in times of economic crisis. You can read the story to better understand the thread;
"In 1970, Citicorp, along with other major American bank had lent aggressively to the government of developing countries, in particular to those in latin America. Reed’s predecessor, Walter Wriston, had proclaimed that such lending was “safe banking” be soverign government did not default on their debts. Wriston was proved badly wrong. When in August 1982 the Mexican government was unable to roll over its massive debt This set of a chain of event that resulted global financial crisis. The next several years saw widespread defaults, currency devaluation, and economic collapse in several countries. When the dust settled, millions of poor people found themselves poorer and banks found that $300 billion had evaporated from their balance sheet. Citicorp alone lost $1billion in a year and was sitting on 13billion in bad debts".
Few questions from ReedReed wanted to know how it happened? how the crisis had happened? and how it could be prevailed from happening again? He consulted several experts, involving leading economists from Academic, Wall Street and government. Reed himself was well versed in economics from his student days at MIT. Yet the economists had little new or useful to say about the crisis. In fact reed believed that their recommendation during the crisis had been dead wrong.
Reed wanted a new way of doing things in economics, the old methods don't contribute to positive changes.
think of it, a high number of the ideas of the industry or fields are more than 100 years old. Then the economics formal theory and mathematical theory are now handicapped by impractical assumptions or directly contradicted by real-world data.
What do you think about economists, who study the theories of economics and brag about being vast in the study of economics, yet don't help or contribute sufficiently to control or stop world economic meltdown?
You see, when there's an economic problem and you inquire about economists, everyone comes with their theories and opinions. They sit together and decide which is best ( it depends on your definition of best though), probably suppressing the solution that would have worked most.
Also, economists see situations and problems in terms of long-term and and short-term. There may be a solution at hand, but that solution has to last for years, probably decades before you see its results.
And lastly, Henry Ford once said, "If everyone understood how our monetary system works, our economic problems would be solved before tomorrow morning" ... But unfortunately, that's not the case. Economists bring their theories and possible solutions, but the people, the individuals in the country are the ones to actually carry out those solutions. Take inflation for example, it isn't caused by economists but they bring up policies to prevent, manage, or stop it. The effectiveness of those policies depends on the individuals. It depends on whether they save or spend, whether they invest or build up liabilities, whether the private business export or import... Etc.
So, I don't think all economists do is brag. They're probably working really hard, harder than you think to stabilize the world's economy.
