AS all of us watched the US Presidential debates and await the outcome of the
elections in early November with bated breathe, I was struck by how much the world
is moving on different planes.
Donald Trump and Hillary Clinton are trading insults at each other, giving democratic
politics a bad name. In the meantime, Hong Kong Legislative Council members are
literally swearing at each other over oath-taking, while Philippine President Rodrigo
Duterte called President Barack Obama a name not normally used in polite company.
Attending several serious economics conferences recently, it struck me how
mainstream economics is increasingly divorced from helping us to navigate this
complex world. Each economist I met presented very complex economic models with
lots of equations on why their model explained beautifully what is going on.
But they were all like blind men describing what an elephant looked like by touching
different parts of the elephant. They were blind to their own blindness.
Worse, they were deaf to each other’s point of view and simple common sense.
The Hillary versus Trump show says it all. Both are 70-year old billionaires trying to
speak on behalf of 99% of the voters who are lucky to accumulate 1% of what these
candidates earn or own. One tries to say that under her and her husband (they
entered the White House in 1993), everything will work as before – more welfare,
more military spending. The other says that everything he has been accused of can
equally be applied to Bill and that the present system is rigged.
The famous economist John Maynard Keynes, writing in his General Theory of
Employment, Money and Interest (1936) famously said: “The ideas of economists and
political philosophers, both when they are right and when they are wrong, are more
powerful than is commonly understood.
Indeed the world is ruled by little else. Practical men, who believe themselves to be
quite exempt from any intellectual influence, are usually the slaves of some defunct
economist.”
Mainstream economics as taught at many universities is truly defunct. In most natural
sciences, such as neuro-sciences, computing and mathematics, most of what under-
graduates learn in three years would be obsolete by the time they graduate because
of fast scientific advances.
This is not surprising. The population of Europe when it embarked on the Industrial
Revolution in 1750 was only 125 million, of which less than 2% was educated. In
other words, probably 2.5 million people then were responsible for the scientific,
technological and cultural revolution that created Western intellectual dominance.
Today, world population is 7.4 billion of which 3.2 billion or over 40 percent is already
using internet, which means that they have access to knowledge and is creating a
new global Industrial Revolution.
Scientific knowledge is being created at Internet speed, and not just in the rich
countries. Many of such new creativity can be found in Asia, such as the Silicon
Valleys in Shenzhen and Bengaluru.
In the meantime, the economics profession makes more and more elegant
mathematical models based on unrealistic and simplistic assumptions that ignored
four key issues that affect us all today – social inequality, climate change, rapid
technological change and geopolitical dynamics. Each of these are complicated
enough, but they are all inter-related and feedback on each other to make life even
more complicated.
Writing in 1933, Keynes had this to say, which eerily echoes the sentiments of today,
“ The decadent international but individualistic capitalism in the hands of which we
found ourselves after the war is not a success. It is not intelligent. It is not beautiful. It
is not just. It is not virtuous. And it doesn’t deliver the goods. In short we dislike it, and
we are beginning to despise it. But when we wonder what to put in its place, we are
extremely perplexed.”
In trying to be a science, mainstream economics focused on mathematical macro-
economics and micro-economics, but largely ignored at least two other fields – mezo-
eonomics and meta-economics.
Mezo-economics is the study of institutions, social organisations that humans built
collectively to deal with the uncertainties and threats from nature and other humans.
Institutions are the link between the macro broad trends of markets and the micro-
behaviour of companies and households. Quantitive economists find this field too
messy, leaving it to management scientists, sociologists, anthropologists and political
science.
Vested interests
But today the main obstacle of not being able to implement economic policy is largely
due to the vested interests of conflicting institutions, suffering from bureaucratic
infighting, incompetence, outright corruption and not cooperating because these
policies conflict with departmental interests.
We can’t get anything done because it is almost impossible to arrive at “collective
action”, meaning that no one is willing to work together to solve our common
problems. We can’t even agree on what the common problem is.
Every politician, expert or agency claims that if you give them more resources, staff or
power, they will solve the problem. But we know more and more about less and less.
So if everyone digs deeper and deeper without understanding what they are doing to
the system as a whole, the world becomes like a Swiss cheese, with so many holes
that the whole has become more fragile.
We are taught by the current individualist creed that individual greed is a public good.
That is at best an ideology and at worst an outright lie.
This is where meta-economics comes in. Meta-economics is the study of why
economists think they way they think about the world. A carpenter trained to use a
hammer thinks every problem is a nail. An economist trained to look at data only is
like a drunk looking for lost keys under the lamplight in the dark. He forgot to look for
the keys in the dark. Shadow banks are not shadows – they were right in front of all
the central banks and regulators to see. They just chose not to see them before the
crisis, attributing it elegantly to “radical uncertainty”.
We went into the last global crisis with our eyes wide shut. Time to open at least one
eye. When economics is no longer common sense, believe common sense, not the
expert.
Tan Sri Andrew Sheng writes on global perspectives with an Asian perspective.
A version of this article appeared in The Star Online, 5 November 2016
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