Politicians are always keen to turn to economists to explain why this policy or that policy is the right one and will make everyone richer.
This feels especially useful for them when they need to explain complicated concepts like supply side economics. Also known as trickle down economics, this highly complex mechanism makes poor people wealthier by giving more money to wealthy people. Obviously that sounds counterintuitive, which is why we need economists to explain that it really does work.
Of course it doesn’t, but if you can get an expert to claim something, a lot of people will accept it. People listen to experts in positions of authority. Which explains most of the value of economists. We figure they must be important even when we’ve never met one or had to call one out of hours to race to our home to deal with a domestic emergency.
So we accept what these experts in this advanced subject of economics say. They must be right. After all, economics is a science, isn’t it? Rather like how a math equation will always return the same result, it’s natural to feel the same way about economics.
Except that isn’t the case. For example, it used to be accepted that the more scarce something is, the higher the price and vice versa. Then prospect theory showed the reality was rather different.
Surprisingly, the price of something may change depending on the circumstances. So we value an item more when we possess it and face the prospect of losing it than when we don’t possess it and face the prospect of gaining it.
Prospect theory is just one aspect of behavioral economics. And one that hopefully shows economics to be more like art than science. As the often unpredictable instinctive actions of people influence how economic acts play out, rather than all of us acting perfectly rationally all of the time.
Clearly for many years, because they followed flawed logic, economists literally couldn’t tell their arses from their elbows. And we shouldn’t expect much more from them today.
Just look at the 1997 Nobel economics prize winners who won for determining a foolproof way to determine the value of derivatives. The two were partners in the LTCM hedge fund, that used their foolproof methods as the basis for its trading. In 1998, less than 12 months after receiving the Nobel prize for their foolproof method, their foolproof method helped cause the collapse of their hedge fun, threatening further harm to global financial markets and requiring billions of dollars to bail it out.
Economists work for the wealthy and are paid by the wealthy, so of course they say the things the wealthy want to hear. They’re just another part of the system that has helped the wealthiest 10% of Americans to hoard 68.3% of all US wealth, while leaving the poorest 50% to share just 2.5% of the wealth between them.
So, why should you trust an economist?
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