The economic crisis is steep, worsening. Green shoots this spring proved elusive. Except in China, for which a generally pessimistic IMF forecasts 7.5% growth this year, where the stimulus package, tough government intervention, and probably some data massaging provide for more growth than elsewhere. Some at Goldman Sachs believe even that China is going to pull us out of the recession – if one believes the message brought to Brussels last week. I am sceptical, as it appears – read here and here – that the Chinese government tends to persist in its past mistakes: the current mini-boom might well be short-lived. And are the Chinese rich enough yet to pull and the US Americans, and the Europeans, let alone all the others, out of their rut? [EDIT 24 July: Michael Pettis blogs about all these issues! Have a look.]
The press and specialized publications are full of irrational economics-bashing and laudable self-bashing economists (here and here), their status and self-confidence strongly shaken by their inability to stop the crisis from happening. More cool-headed analysis shows that the economics discipline remains as strong and interesting as ever (read here again), although some lessons will have to be learnt. As it turned out, many dangers were actually well known and well publicised, only no one wanted to listen. The boom times being what they were, some economists were also human, all too human, enjoyed the spectacle of the global economic party of 2003-2007 and became less vigilant. Barry Eichengreen (here again) attributes this among others to the lucrative consultancy fees received by high-flying academics for speeches during luxury conferences hosted by the triumphant global investment banks. It seems of course true however, that economists must learn more about finance and vice-versa, this gap being one of the blind spots in the understanding of the world before the crisis. And the inherent instability of capitalism analysed by oft-disdained Marx and even Schumpeter has not died out, contrary to many recent views about the end of the business cycle. The Economist also had views on this economics issue last week.
It seems to me that it is not so much the economists that should reassess their profession full on. It’s the financiers I am worried about. Goldman Sachs, primus inter pares among the maverick investment banks of late, is bullish: it has paid the highest bonuses ever to its employees. In the meantime the financial establishment apparently continues to dominate the scene.
This means either two things: the economy is not doing as bad as many say. Or financiers have not yet quite learnt their lesson and continue business as usual, potentially pulling us down even further a few months down the road. In either case, it seems that economists need to go on holiday – to be able to become more discernible again on what is actually really happening in the economy, and to take a well deserved break in these stressful times, since it really is not all their fault.
This morning I received my daily “Eurointelligence” newsletter that updates me on the main macroeconomic issues in Europe. It said:
The flow of good economic and news and commentary affecting the euro area has reduced to a trickle, so that we have decided to take a holiday. The news briefing will return on Monday, August 17.”