They still don’t get it

Here is a gem of intellectual sleight of hand from a self-proclaimed economics “expert”.

Dame Nemet (Minouche) Shafik, an American lady of Egyptian origin[1], who retired on February 28th from being Deputy Governor of the Bank of England, (one of four such) to take up the influential post of Director of the London School of Economics (LSE) where she obtained an MSc (Economics) in 1986. Being responsible for “banks and markets” she served just over 2 years in her post at the Bank of England, barely time to learn their names and what they do. Nonetheless after this short time Shafik felt able to share her thoughts about the public’s view of “experts” as exposed she thought in the Brexit referendum.

Valedictory Speech by Minouche Shafik at the Oxford Union 27th February 2017

This was entitled “in experts we trust?” ( Shafik sets out the case for listening to experts, which she defines as “those who have invested time to develop a deep knowledge of a particular subject, usually with credentials and on-going professional development to maintain their skills”. Not a bad definition provided the “particular subject of study” actually has relevance and credibility to the field it is deployed in.

Some expertises are well-founded, others are not

Experts are rightly credited by Shafik with the increases in life expectancy, but these are due to advances in water engineering, sanitation engineering and healthcare in poor countries, designed by engineers and doctors – not economists. In parallel, and as a consequence of these improvements, average incomes in these countries have risen 20 times since the end of the Second World War.

Here is the intellectual sleight of hand

Shafik explicitly lumps all experts together so that, for example, the failure of economists to predict the disaster which hit the whole world’s financial system in 2008 (as remarked on by HM the Queen), and the complete inability of 33 “distinguished economists” to explain why[2], is conflated with the failure by one medical journal in a small corner of the medical field to weed out a paper alleging a connection between the MMR vaccine and autism – a connection refuted many times over by actual vaccination experts – resulting in the subsequent unambiguous repudiation of the paper and its author being struck off the medical practitioners’ register. In the same period of time of about two years literally millions of people entrusted their health, even their lives, to thousands of medical experts deploying individually tens of years of practical experience.

Is there a single example where anyone or any country has obtained any equivalent benefit from the economics as taught in our major universities such as the LSE, Oxford, or indeed on Shafik’s own undergraduate course Politics and Economics at the University of Massachusetts at Amherst?

People don’t trust some types of “experts” because of their continued failure to learn and improve.

The failure to predict the crash of 2008/9 by any of “mainstream” economists is only the most spectacular failure of recent years. The extraordinary, wildly wrong, economists’ predictions about the dire consequences of the Brexit referendum in a series of forecasts during and even since the referendum campaign, has left the rest of the UK population deeply sceptical of economists’ claims to relevant expertise about the economy.

Even before these calamitous failures of prediction, many non-economists in fields like engineering, which is dependent on mathematical models and relationships based on proven scientific laws, have felt that there is something fundamentally wrong with economics as has been taught in universities across the world for many years, especially in the Anglo-Saxon world, and to be fair so have a minority of economics forecasters themselves.

Thus Neil Gibson, Director of Oxford Economics, records in Table 1 the forecasts for 6 months to one year ahead for the years either side of the 2008 crash 2007-2009:

Table 1: UK GDP forecasts 2007-09[3]
2007 Forecast 2008 Forecast 2009 Forecast
Goldman Sachs 3.0% 0.8% 1.8%
UBS 2.9% 0.8% 1.7%
Cambridge Econometrics 2.7% 0.8% 2.3%
Experian Business Strategies 2.9% 0.8% 1.5%
Barclays 2.9% 0.8% 2.1%
Oxford Economics 2.8% 0.7% 2.2%
IMF 2.9% 1.0% 1.6%
OECD 2.7% 0.8%
Citibank 3.0% 0.8% 1.8%
Lehman Brothers 3.0% 1.1% 2.9% 3.0%
Lloyds TSB 0.7% 2.7%
Actual +3.9% -0.7% -4.1%
Source: HM Treasury
Note: forecasts refer to forecasts made in the previous year; the 2007 forecasts were made in 2006, the 2008 forecasts in 2007 and the 2009 forecasts in 2008

As can be seen, for two of these three vital years all the 12 independent expert forecasters not only predicted the wrong amounts of GDP change, but they were in the wrong direction. Any government trying to pilot the economic aircraft by their models would have found that when they pulled the joystick to make the aircraft go up, instead of rising, it crashed to the ground, as our economy did in 2009.

Clearly whatever is wrong it is a general subject failure[4], but the generality of economics “experts” still don’t accept it.

How Engineers set about the disastrous failure of aeronautical prediction in 1954

The biggest single set of aircraft disasters sustained by British aviation were the three successive crashes in 1954 of the de Havilland DH106 Comet – the world’s first jet-engined passenger aircraft to enter commercial service. In the face of the initial complete lack of understanding of the crashes which killed around 300 people and blighted the lives of many more, De Havilland’s and the Royal Aircraft Establishment (RAE) immediately set about a painstaking investigation of the fragments of the crashed aircraft (the first one gathered from deep down in the sea off Italy), and set about the intricate hand calculation (pre-computer) to locate the sources of stress concentration – in the process of changing the whole basis of structural design – not just in aircraft, but in every structure moving and stationary. Meanwhile the public continued to entrust their lives to existing propeller aircraft and to the long-term successful Boeing 707 jet airliner, its successors and indeed to the redesigned Comet (4B) which lasted another 50 years in crash-free civilian and also military service up to 2011[5].

Need for change in Economics teaching not recognised

This recovery embodies the Engineering and Systems Technology approach to learning and improvement. Sadly there is no acknowledgement of the need for this approach among the contemporary economists who populate the university departments of economics, think-tanks, the UK Treasury, the Bank of England, the airwaves, and like Nemet Shavik, occupy influential positions in British and international institutions. The public only vaguely hears of these appointments and because the appointees appear to have achieved nothing much of tangible worth, the public cynically dismisses them all.

Oddly though, economics graduates are increasingly employed in a whole range of fields which they did not touch in their studies – in transportation, sales, health, social services in particular. Their work is mainly of a relatively simple statistical kind, now taught in undergraduate economics courses, of the type which every A-level course in STEM subjects includes. Yet because it is in the hands of those described as economists – so their work is often seen as suspect by the public because of the manifest failure of economics as a useful tool for managing the economy itself[6].

A current example where economists need to be replaced by real experts: International Development policies and practice

Before being appointed to the Bank of England, Shafik was a civil servant in the UK Department of International Development (DfID) set up by Tony Blair in 1998, initially at least on secondment from the World Bank. She rose from being head of country programmes responsible for “2,400 staff and a budget of £38 billion”, to being head civil servant (Permanent Under Secretary) in the Department. This is from her Wikipaedia entry, presumably approved by such a career-focussed lady, but wrong all the same. Thankfully even DfID doesn’t get to spend £38 billion – its current 2016/17 budget is about £13 billion – still ludicrously large: nobody’s quite sure because its budget is determined as 0.7% of Britain’s GDP – a number which is subject to on-going revision by the economists in the Office for National Statistics.

DfID has been under constant criticism for useless, profligate spending on reams of economists, consultants, and governments of varying levels of corruption throughout the Middle East, Africa, South-East Asia, and South and Central America. Meanwhile, back at base in London, as noted in our earlier post of March 2011, DfID money supports six university departments and numerous courses in international development, both residential and on-line – all new since 1998 – all busy producing development “experts”. However, DfID’s own Institute for International Development has only one scientifically qualified expert on its 27 person board – a vet – not a single qualified engineer or medical doctor (see “The Realities of British Overseas Aid” posted in March 2011 on this website).

End Notes

[1] Many may wonder how an individual brought up in and a long-term resident in two republics which have explicitly rejected the British monarchical connection, ends up with a title explicitly celebrating the British Empire.

[2] The LSE economists’ letter to the Queen said unbelievably that it “was due to a failure of the collective imagination of many bright people”. Many readers will look past this exculpatory self-praise, and recall their own anxieties at the banks’ lending frenzy from 2000 on with house prices doubling in 7 years (i.e. 10% compound per annum). They will see the letter as yet further evidence of the divorce from reality of the economics profession. They are still (2017) at it.

[3] N Gibson (2011) Trans Manchester Statistical Society, December 2011, pp 49-64.

[4] Some economics undergraduate students are acutely aware of this, even if their lecturers and professors are not. There are a number of informal university clubs set up to address the problem.

[5] In the RAF this was finally as the Nimrod 4 surveillance aircraft until (allegedly) taken out of service by decision of the Prime Minister of the day (David Cameron) in a fit of temper (see “More Dangerous Madness” on this site): Impending Destruction of Nimrod MRA4 fleet, January 2011, David MacDonald.

[6] Repair work has been carried out on the financial system itself since 2010, chiefly to increase bank lending safeguards (such as Basel III), but this has been carried out by banking practitioners, not by economists acting in that role.

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