Economics is the study of how humans manage their scarce resources in the face of uncertainty. The goal of a good economist is to understand the mechanisms through which people achieve this, to analyze the working of the economic order and present a comprehensive theory of how it functions. This is all economists should do and all we should expect by them. However, it is all the more common to anticipate economists to provide us with plan to fix all our economic problems as well as anticipate those that have yet to appear. This view of the economist is both unrealistic and impractical and to demonstrate that this is the case we shall go over a couple of questions to see if economists know as much as they are credited to.
Do Economists Know How to Coordinate the Economy?
Many people expect economists to know how the different sectors of the economy work and be able to command them in order to maximize social benefit. The market order is viewed as chaotic, indifferent to the poor and should be organized along rational lines to avoid its constant failures. This view, however, is false to anyone with knowledge of 20th century economic history, especially the economic history of the USSR, a country through central planning by “master economists”. The result was not only economic chaos but also a brutal dictatorship that lasted for about 70 years. In an attempt to collectivize agriculture during 1929 the rural economy was disorganized, production dropped and political upheavals sparked across Ukraine. It is estimated that a total of 5,000,000 people died during the man made famine with 3,900,000 of them being Ukrainian.
But why did this happen? Were the Soviet economists and political leaders too ignorant or too selfish to organize production? No, we have every reason to assume that most of the soviet organizers were good people loyal to their country. They just didn’t know what they were supposed to do. They couldn’t know what to produce and in what quantities since no market prices existed in the country. In a free market the farmer who saw the increase in demand could increase his production accordingly to supply the consumers. Without prices however this was not possible. This is what is commonly called today the Economic Calculation Problem first analyzed Ludwig von Mises in “Economic Calculation in the socialist commonwealth” and later expanded by Hayek in his most famous article “The use of knowledge in society”. The problem is how a society should manage its scarce resources. Under the market this is done by prices but how will the process operate when no prices exist? Many economists from Lange to Cockshott have offered their takes on how to solve it but until know no definite answer has been provided.
Can Economists Predict Future Events?
In 2008 after the outbreak of the financial crisis Queen Elizabeth asked why no one foresaw the economic collapse that was going to unfold. Why didn’t the bankers, the politicians or the academic economists anticipate it? Similar questions have arisen multiple times throughout history. People wondered why did no one anticipate the Panic of 1819, the Great Depression or the Stagflation of 1970s. There are two reasons why this happens. First, markets are extreme volatile because they are composed by people and people are unpredictable. No one can imagine what is going to happen in the next months, years or even the next days. The famous Austrian economist Ludwig Lachmann described our society as kaleidic and added “a society in which sooner or later unexpected change is going to upset existing patterns, a society interspersing its moments or intervals of order, assurance and beauty with sudden disintegration and a cascade into a new pattern.” We cannot make predictions because society changes too fast to properly comprehend.
Second, another reason why they cannot do it is because they, in many times use inaccurate models that are disproved by real world events. A great example of this is the stagflation of the 1970s. According to the then dominant keynesian view inflation and unemployment had to always move in the opposite direction. More inflation less unemployment, less inflation more unemployment. Stagflation was impossible, yet it happened and it brought on the reign of the monetarist and the Chicago School represented at the time by Becker, Stigler and the most prominent of all Friedman. Even a smart economist couldn’t foresee something like this because his theory deemed it as impossible.
Conclusion
The public shouldn’t anticipate economists to either predict future events or two be able to command economic activity. From our analysis we saw that nothing of that sort is impossible in our world. Economists don’t have the knowledge to distribute resources effectively since they lack the necessary information to do so. They can neither predict the future because the economic conditions are always changing and even if they tried there is a chance their models are wrong. We are led back to our original thought that economists should restrict themselves to just providing a theory of how the economy functions, by no means try to influence its outcome.
