The roster of winners of the Nobel Prize for economics includes many who have skilfully dissected some aspect of economics – but no Nobel Prize economist can be said to have ‘explained’ the global economy, except in the most rudimentary sense, such as that it’s good to buy low and sell high, writes Gregg Easterbrook in ‘Sonic Boom: Globalization at mach speed’ (www.landmarkonthenet.com). He frets that no Nobel Prize winner in economics has ever successfully predicted what would happen the following year, let alone predicted a generation-long economic pattern, rather than speak in general terms such as that ‘markets will remain volatile.’
The history of global economic change is one surprise after another, the author finds. “There are always-rosy predictors who are sometimes right and always-gloomy predictors who are sometimes right. This alone shows how the economy resists forecasting.”
He argues that experts in economics often seem to have so little to say about where the economy is headed – in contrast to, say, medicine, aeronautics or physics, where most specialists could present a reasonably accurate forecast of what is likely to happen in the next decade or two.
No one runs the economy
You may then wonder how the head of a country and the top officials run the economy if economic experts have no idea what will happen next. A sobering answer from Easterbrook is that no one runs the economy. The media-shorthand view that the president controls the economy is Hollywood thinking, serving the need to create storylines and narratives based on personalities, he observes.
“The idea that powerful Washington officials such as the chair of the Federal Reserve sit in some kind of James Bond-style master control room, turning dials and controlling economic trends, bears no relation to actual events…”
Uncommanded institutions
So, the next question can be this: ‘If no one can predict the economy and no one is in charge, how does the international economy function reasonably smoothly?’ Perhaps the economy functions reasonably smoothly because no one is in charge, Easterbrook reasons. “That is, the economy ‘is rendered stronger by its own instability.’ With no one in charge, there is no person who can make a fatal economic blunder.”
The ‘Sonic Boom’ global economy is one of uncommanded institutions, in which more and more aspects of our lives will be influenced by truly huge numbers of people at home and abroad, yet no one is in charge, he describes.
“Today practically all the world’s governments, even the remaining dictatorships, worry about public opinion. Internet connections and other network effects make it ever easier for large numbers of people to have input into decisions, while even harder for those who aspire to single-individual power to deceive the public.”
Hopes of cooperation
To address the common anxiety whether a market economy, with incentives that lack sentiments, can methodically destroy itself even without intending to, Easterbrook draws hope from the research by Benjamin Friedman, an economist at Harvard University who counts ‘greater opportunity, tolerance of diversity, social mobility, commitment to fairness and dedication to democracy’ among the consequences of ‘rapid, disorienting, often infuriating economic growth fostered by free-market forces.’
The author also cites Eric Beinhocker of McKinsey, for the view that the underlying force in economics can be cooperation. “After all, I can’t sell to you unless you’ve earned the money necessary to buy. My business won’t remain prosperous for long unless your business does, too.”
The same forces that are currently globalising the world and accelerating economic change at head-spinning velocity may also eventually allow the world to adopt cooperative economics, aided by universal communication and education, Easterbrook anticipates. “Then there might be a form of economics that has the productive success and allocative efficiency of market theory, coupled to a more humane pace of life.”
Forceful presentation.
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