Glamor Economics

Chapter 9

Chapter 2 Section 2 Watch out!Economics also "lies"

When we learn any science, it is for the purpose of applying what we have learned.However, there is no one-size-fits-all knowledge.Because reality is absolute and theory is relative.Any science has limitations and failures, and economics is no exception.

Economics is a science that explains social phenomena.When economic theory is out of touch with social reality, the limitations of economics will appear, social phenomena cannot be explained, and the problem of economic failure will appear.Let's look at an example below.

In November 2008, Queen Elizabeth II visited the London School of Economics and discussed the economic situation with some professors.She then asked: "Why didn't anyone notice it (the financial crisis) in the first place?"

"Sorry, Your Majesty, we failed to predict the arrival of the international financial crisis." A group of top British economists wrote in a letter to Queen Elizabeth II on July 2009, 7.

A copy of the letter was obtained by the British newspaper The Observer.The signatories of the letters are all well-known British economic and sociologists, including Tim?Besley, famous professor of history at the University of London Peter?Enesi et al.

In this three-page letter, in addition to expressing apologies, the scholars also explained to the Queen the reasons for the outbreak of the financial crisis: financiers successfully convinced governments of various countries and convinced themselves that they had fully grasped the effective way to control risks. approach, and it now appears that "this has become the best example of wishful thinking and arrogance". "In short, the failure to predict the time, magnitude and severity of this crisis is the collective mistake of many wise people. No matter domestic or international scholars, people have failed to regard systemic risk as a whole."

Why did economists fail to predict the financial crisis sweeping the world?Many economists have reflected on this.Some economists did warn of a housing bubble forming, and most admitted they hadn't predicted the damage it would cause when it burst.Some economists have pointedly pointed out that because of the free market bias in the profession, combined with outdated and simplistic analytical tools, many economists failed to detect the danger signs.

The reason why foreign economists failed to predict the financial crisis is because they dogmatically regarded free market economic theory as the only magic formula to support the development of the world economy, and superstitiously believe that the market and capital are omnipotent.The outbreak of the financial crisis has made the so-called "capital omnipotence theory" self-defeating, and also surprised economists from all over the world, falling into an embarrassing predicament that is difficult to justify.

Economics also "lies".Xue Muqiao, a well-respected master of economics in China, once said: "It is impossible for any economist to completely transcend the limitations of the times, and I am no exception. Now it seems that the opinions in the articles I wrote in various periods after the founding of the People's Republic of China have some Some are just incorrect, or even wrong.” He has said many times that an economist’s economic outlook should be tested by time, and history should draw conclusions, and he looks forward to such tests and conclusions.

Keynes said well that economics is a method, not a dogma; economics is an instrument for the mind and a tool for thinking, which can help people draw correct conclusions.We study economics to use economics to guide our lives, not to blindly follow economic theory.Otherwise, it is likely to be fooled by economics.

(End of this chapter)