How Economists Are Failing Society: Professor Robert Wade at the Ika Seafood Bar & Grill

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LAILA HARRE saved the very best for last. The “Salon” lunch with economist, Professor Robert Wade, provided one of those clarifying political moments when, at last, the veil falls away and you are shown the real state of affairs in all its terrifying clarity.

Wade is what his orthodox colleagues at the London School of Economics would loftily dismiss as a “heterodox” economist. Someone who refuses to toe the accepted line. Someone with the courage to point out that the economic emperor isn’t wearing any clothes.

More than this, however, Wade exposes orthodox neoliberal economics as a failure. Presenting itself as a scientific discipline, fully capable of pronouncing definitively on the true nature of reality – the profession was, nevertheless, unable to produce a single accurate prediction of the Global Financial Crisis (GFC).

There was a very good reason for this. As Wade explained to his mostly academic audience, the Dynamic, Stochastic, General Equilibrium (DSGE) model used by orthodox economists all over the world – including the OECD, the IMF, the World Bank and the Bank of England – does not factor-in the influence of the financial sector on the economy, and flatly denies that economies conforming to the DSGE model are susceptible to crises generated endogenously (i.e. from within themselves).

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Just think about that for a moment. An economic model that makes no allowance for the most powerful force in the modern international economy – finance capital. A model which, for that very reason, simply could not see the Global Financial Crisis coming.

Now, you might think that a profession which had exposed its shortcomings so dramatically might be feeling just a little bit chastened; might be looking for a new economic model; might even be ready to admit that it had got just about everything horribly wrong and apologise to the world for all the extraordinary suffering its failure to read reality correctly has produced.

You would, however, be wrong.

Orthodox economists pride themselves on their positivism. They are not swayed by their emotions, nor do they make value judgements. The language of ethics and social responsibility is foreign to them. Their language is mathematics. Numbers don’t lie – and they certainly don’t apologise!

But if Orthodox Economics pays no heed to the real world and cannot predict an event as devastating as the GFC; if it scorns all those who posit a different interpretation of the economic data; if it guards the tenets of its economic faith as jealously as any member of the Roman curia, and punishes heretics with equal severity; then what, exactly, is the orthodox economics profession?

The answer lies in the word “faith”. Wade himself said that there is a religious quality to the thinking of the men and women in economic institutions like the NZ Treasury. And this, of course, is exactly what the orthodox economics profession has become – a modern priesthood.

In terms of the social and political function it serves, Orthodox Economics is no different from the Medieval Catholic Church. It exists for one reason and one reason only: to justify the ways of the rich to the poor, and to convince them there is no alternative to the inequality and injustice of the existing order. As it was in the beginning, is now, and ever more will be, world without end.

This brief review hardly does justice to Wade’s lecture. There is much more that I wish I could recall: astonishing quotations from these naked economic emperors that left his audience shaking their heads in disbelief.

The vote of thanks was given by Laila’s dad, who first met Wade when he was a young student of anthropology back in 1960s Auckland. Indeed, he was able to produce a wonderful photograph of the young Robert Wade, taken during an expedition to the islands of the South Pacific.

There he was, one of many rowers, hauling manfully on his oar, in the midst of a vast and troubled sea.

Somehow, it seemed appropriate.

27 COMMENTS

  1. Mainstream economics is so phony you can drive a pus through it without scratching the paintwork.

    1. GDP ascribes positive values to negative activities, so the more energy and resources that are consumed replacing or repairing damaged vehicles, damaged houses, damaged bodies, the better the GDP numbers….which is why the Christchurch earthquake was the ‘best thing that ever happened to Christchurch’….lots of fiat money changing hands and lots of energy and resources used up. Please crash your car, set fire to you home, get divorced -it’s all good for the economy! of course, governments won’t have a bar of GPI -Genuine Progress index- because it exposes their scams.

    2. Energy supplies are assumed to be infinite and ‘will appear whenever required’. This is a particularly interesting delusion in a post peak oil world which is suffering from falling EROEI.

    3. ‘There is no such thing as pollution and humans can continue wrecking the geochemistry of the Earth and local habitants with no ill effect’. This is another interesting delusion in a world undergoing Abrupt Climate Change and the Sixth great Extinction Event.

    4. Ponzi monetary supply can be expanded forever because ‘growth will always exceed interest payments’. Okay, so central banks can impose negative interest rates for a while. Then what?

    ….which is why we are in a terminal predicament and why the present system must collapse, very likely before 2020.

  2. The DGSE model is certainly orthodox. and aside from Bush Jnr. drawing us into a 2003 Iraq ,expensive and totally against the wisdom and caution of Sun Tsu, it was the “Wolves on Wall St” who, in my opinion led us into the GFC. of 2008 and since.
    Be aware that there is a key point to make here , and that is that our Prime Minister was one of those ” key wolves” before he assumed the”charitable?????”role as our Prime Minister.

    • We have all swallowed the kool aid that says money is a commodity that you can be mined like gold when we run out. That if you just work hard enough you can be successful.

      With out a doubt financial engineers are the best pick pocketers ever

  3. Thanks Chris and thanks to Robert for a superb expose. The emperor has no clothes but who holds economists to account? Will we still be teaching much the same things in standard economics courses in 5 years time? Robert talked of the stultifying male bias in the discipline. Women don’t see themselves in the economists’ models and largely drift away. The work of reproduction and caring for humans is ignored while dull homogeneous economic units generate the all important GDP. Values permeate the so called ‘value-free science’ as Robert eloquently described. I was left with this thought – the economics profession does not have the tools or the will or the wit to think about the growing crippling and corrosive inequality and shocking poverty levels they should get out of the way. All power to you Robert and thanks for bringing the needed messages to NZ.

  4. For me the strongest point was that , unlike lawyers, doctors and even engineers, economists have no code of ethics, despite having an influence on the life chances of many

    • @Anita – you have hit the nail on the head.

      Our society is being run and influenced by morally bankrupt economists within a group think environment, who count everything and value nothing.

      In some cases like Clayton Weatherston, former economics lecturer at the University of Otago, they are literally psychopaths.

      In addition how many smart people take economics? Not many in my opinion – smart people do art or science degrees.

      We now have averagely intelligent, morally bankrupt group of people (whom some are psychopaths) influencing the entire world direction via this bizarre economic theory which ignores the basics, is proven not to work, but being championed by other mediocre people like them benefitting.

      Forget ISIS, the real worry for the average joe, is the fanatic rise of neoliberalism, now in it’s new form influencing 40% of the world economy, TPP.

      It is scary.

    • Another candidate ‘the smiling assassin”

      From wikipedia
      John Key attended the University of Canterbury and earned a Bachelor of Commerce degree in accounting in 1981.[4][7] He has attended management studies courses at Harvard University.[8]

      In 1995, he joined Merrill Lynch as head of Asian foreign exchange in Singapore. That same year he was promoted to Merrill’s global head of foreign exchange, based in London, where he may have earned around US$2.25 million a year including bonuses, which is about NZ$5 million at 2001 exchange rates.[4][13] Some co-workers called him “the smiling assassin” for maintaining his usual cheerfulness while sacking dozens (some say hundreds) of staff after heavy losses from the 1998 Russian financial crisis.[5][13]

  5. Even if economists had predicted the GFC most people wouldn’t have wanted to hear it.

    There’s a psychology of asset bubbles. At their peak most people feel euphoria. They believe this time its different, there’s no bubble, so there can be no crash. And if someone tries to point out that maybe there’s a bubble and so a risk of a crash, those who are invested in the bubble (which is most people at the peak) react viciously to the idea.

    Because they have to. Because they’re heavily invested in the bubble.

    I’ve been analysing markets and charts daily for nearly 10 years now. This is my living and I’m qualified and experienced. It’s actually not so hard to see a bubble forming, and not so hard to predict it will end with a crash. The hard bit is picking the high, the turning point. You can see it early on in the crash, but not right before it turns. You just know that turn it will.

    I’ve learned the hard way during the 2008 crash that people just don’t want to hear it. And so I keep it to myself and make my own profits.

    So even if the economists had predicted the GFC those invested in the bubble wouldn’t have listened.

    Its a kind of crowd psychology. Most people go with the crowd.

  6. The best way to understand economics is to engage with non-economists.
    Future generations will look back at our economists and call us barbarians. And they’ll be right.

  7. Most economists never let real life get in the way of a good model. Humans and political economy are complex and chaotic, not rational and utility maximising units of production and consumption

  8. There is a ” one of a kind ” extremely unique economist who is very much not failing the world and that is ===>>> M A X K E I S E R on RT.com.

    He is light years ahead of them all and tells it like it is exposing the criminal banksters and greedy war mongering politicians and how they have devastated the worlds economy and ruined many lives.

    His ” code of ethics ” is in another league from most all economists. Check him out and you will not be disappointed. One of the rare lights in the darkness.

  9. The statement the “neo-liberal economic is a failure…….becaused is it didn’t forsee the GFC” is a fallacy.

    The analogy would be Climate Change is discredited because it didn’t forecast the pause the rise in temperatures. Nor it did show melting of ice-caps by now as per Al Gore climate models.

    For those light on economic history, economist have been notoriously poor at predicting economic crises no matter what persuasion…. Keynesian, Marxist, Monetary, Chicago-school. They always look at the rear-view mirror.

    If they could predict accurately at any point in the past most economists would very very wealthy. Alas they are not.

    Neo-liberal economics will be discredited and deemed a failure if its policies produced societies which are the poorest in the world and not by the crystal-ball gazing abilities of some it proponents.
    I would like rank societies that are the poorest and assess their economic system…. e.g. North Korea vs South Korea; Cuba vs Chile, Maoist China Vs Current China.
    Remember the essence of the free markets is that no individuals can make perfect decisions on the future but it is millions of individuals making individual decision that produce a system which is not perfect but better that the rest.
    What it does not do is provide: adequate environmental protection, social welfare.. these are provided for by other decisions made by societies and not necessarily by the economic system.

    • “Neo-liberal economics will be discredited and deemed a failure if its policies produce(d) societies which are the poorest in the world and not by the crystal-ball gazing abilities of some it(s) proponents.”

      What are you trying to say?? Corrections I made in brackets I can forgive, but proponents are people who advocate in favour of something. Is the word you are struggling to find ‘opponents’? You really make no sense. If language is the instrument of thought..

      I despise your idea (?) that we should close off our moral judgements and place our faith in some blind ‘invisible hand'(?) of some stupid bloody market system that keeps producing collapses.

      You are incompetently defending a corrupt system that favours the current oligarchy. I assume it favours you too.

      • I have to more careful of proof-reading, pedants everywhere.
        ‘Proponents’ is correct, as in the context of Chris Trotter article, the failure of economists (neoliberal economist) to foresee the GFC was given an example of bankruptcy of neoliberal economics. The failure of crystal-ball gazers are the ‘neoliberal economists’, the proponents of system. They are not the opponents of neoliberalism. Apologies, I assumed a longer attention span.
        What I would like to see from you is cogent arguments not pedantic vacuous points.

        • @ David . For Gods sake man. Use a spell checker. Or get a school kid to help you out. Because honestly? Those missing words and poor grammar are as annoying as Hell.

          We’re trying to reign you in to make sure you stay on-topic instead of you wandering about your key pad looking for adjectives to use to defend your pointless point of view and really, I’m sure, only succeeding in increasing your heart rate and blood pressure. All you have to do is go outside and take a look. We’re in deep shit. You can babble on as much as you like about pedants and sniping malcontents and good on you for holding up to the stress of it but take a look outside. Use your , I’m sure immense powers of deduction. What do you see ? Deepening shit ?
          We’re fucked because we were taken advantage of by a cadre of tricksters using an education to ruin us for their pleasures. If they were well intended and were careful to do the job we pay them to do then this situation might certainly have raised its ugly head but we’d have all known about it years ago and our noble politicians would have taken steps to provide shelter for us in the coming times of hardship. But what did they do instead ? They took the money and are now in the run with it.
          What, about that, is difficult for you to understand?
          What we need to do is get our money, our assets and our systems back.

          It’s my view that jonky should be arrested and held in custody ( serious flight risk ) pending a public inquiry.

    • Your wrong. Financial crises is man made, created by the system. We gone from the markets should correct themselves in the anti monopoly era of the 50’s – to the markets would correct themselves in the government bail out era of today.

      We did fail to predict the dairy price shocks, and we responded with that failed data. I believe the down turn is far longer, and far wider than it needs to be.

      It’s not bloody hard to say we can store “X” of water for agriculture use, if you use it up, that’s a fucken disaster. Some times you have to get your head out of the top floor and physically observe the problem, in order to make sound decisions instead of relying on flow charts and power point displays

      • Financial crises are man-made. The has been the history of capitalism. Minsky moment….when things are most stable, is when it is most risky has been an observation that has been proven true.

        However, capitalism has shown by it survival and demonstration of success to be the best of a bunch: Feudalism, Communism etc.
        People mistake capitalisms’ imperfections as a demonstration of it failures.
        What are the more successful models?
        From my observations, they have variations of capitalism… state influenced-capitalism of Singapore, socio-democratic capitalism of Western nations.

        Show me the successful alternatives…… interesting to see the examples….

        However, I would just expect more sniping of malcontents, bankrupt of ideas.

        • the problem is – free market capitalism is just a subset of capitalism

          to focus on capitalism and its pros/cons as a whole is a bit misleading as the current orthodoxy is but one form of capitalism

          Its just as wrong as trying to shoot down socialism by talking about communist russia, cuba and mao (though in a different direction)

          The free market capitalism promoted by modern economists (well the ones we hear from most) IS a failure simply because, just like state communism, it funnels wealth upwards into a small elite. It doenst matter what you call the system – if thats the outcome its a failed system. It is as simple as that.

          and if were talking other models that were successful – lets compare the US to the nordic countries

          or maybe the US post WW2 that had a massive level of federal influence over the economy and saw the greatest rise in living standards in US history – ever.

          Theres a whole spectrum of ideas and methods that exist between state communism and no holds barred capitalism – lets stop focusing on the extreme ends as the only answers

      • Ummm are you answering me? If so, what are you saying?

        “You(‘re) wrong. Financial crises (are) man-made..” My corrections in brackets.. I cannot follow you.

        I cannot tell if you are disagreeing with me or David.

        Sorry.

        • For those with an open mind listen to this excellent podcast from the National Public Radio from the US.
          It looks at how Food-banks used “free-market” mechanisms for their need to efficiently distribute donations around the country. Despite scepticism at the beginning, as Food-bank operators are the antithesis of Free-market capitalism.

          http://www.npr.org/sections/money/2015/11/25/457408717/episode-665-the-pickle-problem

          To me it demonstrates the usefulness of the market. However, there are limitations of the Market and it is NOT an answer to all lifes’ problems.

        • @Vino. Welcome to social media? Been here long?

          If it’s to difficult, then, it’s probably best if you delete your iga.

          It’s not that democratic systems fail. It’s that democracy in all its forms are incompatible with capitalism.

          @David. What Adam Smith wanted to do was create a system that could provid every one on the planet with ice cream. 200 years on, that hasn’t happened.

          What we call capitalism now has shifted to the extreme right where the loony sudo scientists, racists and cult leaders are. If we were to take the handbrake off capitalism, that would represent complete tyranny. Companies could shut of electricity and water at will, for favourable profit margins. That happens now but under a criteria of payment, if you look at all of NZs listed companies, all of there profits come from the tax payer via the government. All the subsidies, tax brakes ect ect, with out socialism for the rich, half our companies would go bankrupt, because it won’t be cheap enough to export our most valuable commodities so the uber rich can capture all the new income.

          Ice cream like capitalism has become a huge problem. It’s crushing our health sector, making us sicker. John Keys is running the country into the ground to the applause of the masses

  10. “free market” is an oxymoron anyway

    If there are no rules, powerful players can use their clout to dominate and shut out smaller players,(in some cases running at a loss to debilitate and weaken a small player) and create duopolies, virtual monopolies etc = not a free market

    To combat this we have rules, judges etc = not a free market

    There is no such thing as a free market – never has been, never will be.
    Even back in the days of the barter economy and the village – if you stepped outside what was considered fair there were consequences

  11. Many years ago in another life I drove a taxi in Sydney. I used to do the very early morning shift and I used to take home a lot of sex industry workers. They were able to predict an economic downturn better than any economist. When the cash started to dry up they were the first to know.

  12. This is old stale news anyone half way clued up as been aware of this rip off for the last 20 years at least: it’s like ww11 is over and someone gets it: “Wow!” that Hitler was really a bad man! Anyway the seafood must have been nice to eat, some compensation.

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