Economists have too much power

The prospect of anti-COVID 19 vaccines has increasingly brought attention to the post pandemic world. Will the world go back to being “normal” again; or, will there be a “new normal?”

There will increasingly be debates on the topics that have been set aside in the midst of the current crisis. Among these are the problems regarding climate change and globalization. One burning issue that existed before the pandemic crisis is the issue of income inequality. This is a favorite topic of Pope Francis who has been espousing ideas that would be considered radical if he were not pope. Foremost is his belief that the market system or capitalism results in income inequalty. He has explained in many writings, including his encyclicals and latest book, that the “trickle down” theory does not work. This is the economists’ favorite argument that the best way to solve poverty is to grow the economy through reliance on the market economy. Then as the rich get richer, their wealth will eventually “trickle down” to the poor. The global economy has experienced economic growth since the financial meltdown of 2008; but income inequality has worsened.

Even during this pandemic crisis, there are reports that the rich have generally increased their wealth or have, at least, financially survived the economic storm while the poor have been reduced to surviving on a daily basis for their basic needs. The solution of the very rich has been to increase their philanthropy and charitable work. The donations of foundations and the very rich have grown into billions of dollars the last decade. At the same time, the gap between the rich and the poor have actually become worse during the last decade. There are enough statistics from organizations like Oxfam and the World Bank to prove this phenomenon.

I have explored this topic in previous columns and more books and articles are now being written about this topic.

One of the more controversial topics, among the many, is the growing divide between the traditional economists and a new breed of emerging economists, many of whom refuse to label themselves as economists. The traditional economists cling to the beliefs that the most important measures of economic policies are Gross Domestic Product (GDP) and per capita calculated on a macroeconomic basis.

In an article “The Dismal Kingdom: Do Economists Have Too Much Power?” Paul Romer wrote that traditional economists have taken on the role of philosopher kings, determining what is good or bad for society. He says: “Writing in 2018, the economists David Colander and Craig Freedman proposed one such correction. Over the course of the 20th century they contended economists had built more and more sophisticated models to guide public policy and many succumbed to hubris in the process. To regain the public’s trust, economists should return to the humility of their 19th century forebears, who emphasized the limits of their knowledge and welcomed others – experts, political leaders and voters – to fill in the gaps. Economists should commit to that approach, even if it requires them to publicly expel from their ranks any member of the community who habitually overreaches.”

One of the biggest defenders of free market was Alan Greenspan who told a group of business economists in 2002: “Unfeterred markets create a degree of wealth that fosters a more civilized existence…I have always found that insight compelling.”

The global economy will never be the same, at least for the foreseeable future. One feature of this crisis is that it is highly regressive. It is very obvious that the ongoing economic dislocations are falling more heavily on those with lower incomes. In countries like the Philippines, the increase in poverty leads to homelessness and hunger.

Those in the lower income brackets which comprise the overwhelming majority of the population do not have the ability to work remotely and they do not have the resources to tide themselves over when not working. Also, as the pandemic disrupts supply chains and agriculture, there has been a spike in food prices. Luxury items may have gone down in prices; but basic items will continue to be difficult for the poor to access.

Economists are making rosy predictions about 2021 because they are again looking at GDP growth. There will be many optimistic news in the business circles about the economic pie growing. There will be less concern again about distribution of wealth and providing every household access to a living wage, quality education and health care.

During this period of economic crisis brought about by the pandemic, governments have resorted to stimulus spending financed by massive debts. There will have to be a time of economic reckoning. Debts will have to be repaid.

Again, the debate will be to determine who will bear the burden of financing these costs. Traditional economists will insist that to address these economic issues, business must not be allowed to bear any of the burden. The poor will again have to pay in terms of higher consumer taxes and contributions to social funds like PhilHealth and SSS.

In fairness, there are many social questions that are unfairly described as economic issues. For example, is population control or other demographic issues rightfully categorized as economic issues or should they be addressed as moral issues?

Perhaps it is impossible to expect traditional economists with their econometric models and cost analysis to make recommendations based on their hearts and consciences rather than simple figures and scientific analysis. Maybe what we need are more humanitarian economists.

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