March 16th, 2013
in Op Ed
by Dirk Ehnts, Econoblog101
Here is an excerpt from an interview with G.L.S. Shackle in 1983 at mises.org (my highlighting):
AEN: I take it that you don’t hold much confidence or faith in attempts at economic prediction through econometric techniques.
SHACKLE: No, frankly I don’t. I shall be shot out of the profession even further than I have been already; this will be the end of my career, if it hasn’t ended many years ago. However, I will be honest and say that I don’t think that economics can yield constants of the kind that physics does. Physicists have constants, e.g., the acceleration due to gravity, the table of atomic weights. I don’t believe that economics can have constants like that, You might make measurements which are all right for today. But, there are countless people whose interest it is to make nonsense of those measurements tomorrow. Well, now I have really been quite honest.
AEN: If one takes that position, then a question could be asked of you: Given what you have said, what should economists do?
SHACKLE: I think they should give up giving advice, except on the most hesitant, the most broad grounds. I think they should introduce an ethical element, a more than ethical element. If a man is asked whether public expenditure should be cut or not, he perhaps should say, “Well, if we cut it, we shall cause a great deal of misery; if we don’t cut it, we don’t know what the consequences will be, but we can’t at least have this misery on our consciences”. This sort of argument is not an economic argument, it’s an argument with one’s conscience.
Given the situation that we have in Europe, this is very important. Economists must have a conscience, otherwise they are useless. If economists act as if they knew everything, they must have been either wrong or they lied. The consequences of the policies, however, we would expect to be disastrous. And so economics discipline, macroeconomics more than any other, embarked on a “we trust in mathematics” spree which made it possible to give a answer to each and every question. Never mind how they got there, the system turned out to be profitable for many and these made sure that the system continued.
Now, in 2013 we are still with the good old idea that monetary policy works and that the market will fix itself if left alone. To the people of Portugal, Italy, Ireland, Greece, Cyprus and Spain it is obvious that this is not true. The European Commission nevertheless advocated one austerity program after another, only allowing Spain to go for a little bit of less austerity lately. Only slow there seems to be the realization that the theory, and not reality, is wrong. In an interview with EL PAIS, Antonio Tajani, vice president of the European Commission, says in connection to the Italian elections (my translation, from page 18 bottom – no online article is available):
If politicians only impose sacrifices without planning stimulus policies the people will get angry.
Coming back to G.L.S. Shackle, we have a dangerous situation in Europe. The political elites tell the people that their suffering is necessary and will be rewarded, whereas the people feel that it is unfair and that the reward does not see to materialize. This is especially so for young Europeans, which face years of unemployment and a very uncertain future after that.