As a first year student of Economics I often found it amusing and inspirational to hear about the likes of John Nash , Keynes , Karl Marx and so many other Economists who shaped the world through their theoretical notions.
Imagining those think tanks sitting down to discuss about myriad socio-economic issues and their viable solutions used to ruffle up my spirits and motivate me to go on and become a part of such agencies that provide avenues to put theories into practice and make the world as we know it a better place . However, thanks to a few books and the universal mentor-Google, my perception about this has undergone a drastic change.
This is not a story about how some bright economist put forward his subtle theory that saved a generation from delving into the abyss of economic debacle, this is a story of how often even expert economists go wrong and how future predictions of top notch think tanks too can turn out to be lame.
"I give them two years before they're turning out the lights on a very painful and expensive mistake," these were the words of David Goldstein manager of Channel Marketing on how well Steve Job’s prodigious firm of Apple was going to sustain in future and we all know and see the market response for Apple .
Mr Alan Greenspan(Federal Reserve Chairman) was quite a symbol of perfection in the US derivatives and stock market. In fact the world presumed him to be an impeccable decision-maker until late 2008(financial crisis stage) that it was figured out many of his vague testimonies were questionable including the 2005 statement on derivatives that went downright wrong. One of his remarks had the following line “ Derivatives have permitted the unbundling of financial crises” Three years later the use of derivatives sent the economy into a tailspin.
Still think economists are geniuses????
In 2007, Joseph Cassano, AIG’s financial product head said, “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of these [credit default swap] transactions.” One year later, Cassano’s realm of reason was turned upside down, and a $182 billion taxpayer bailout saved the United States largest insurance company from bankruptcy caused by these transactions. It would have been wise if Cassano and his team had looked a little harder for the worst-case scenario staring them in the face.
Even during the Global Financial Crisis of 2012 the purveyors of theoretical wisdom had it all figured out. Latin American countries wouldn’t manage,countries that relied on their powerful allies could benefit from insurance and ensure stability, the growth rates of East Asian countries wouldn’t grow below the last decade and so on and so forth. Not one of these predictions came to pass.
Latin American countries established stability through efficient macroeconomic policies. Countries such as the Baltic states, which joined the EU in the 1990s, discovered that their embrace of its economic rules and reforms offered little protection from the crisis.
Countries considered models in their transition to advanced economies, like Ireland and Spain, were thought to be immune from the most damaging effects of a global economic crisis. But just the opposite occurred. In Ireland, many observers were misled by the country’s two booms: a “good boom” based on sound economic fundamentals, and a “bad boom” following its adaption of the euro. Even a genius is a crackpot till he hits the jackpot. All these events throw light on how even the best in the business go wrong. One surely cannot question every economist and on the hind side not every answer of an economist can be accepted as well. However with so many weird predictions and theories going wrong one can’t help but ponder if these great economists in their fancy positions actually deserve the importance that is attached to their predictions.
Interesting
ReplyDeletesuch a spontaneity in writing.. i like the way the thoughts flow via your words ..
ReplyDeletethank you :)
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