Economists are letting us down, says Ann Pettifor, an author and director of global PRIME (Policy Research in Macroeconomics).
Through no real fault of their own, today’s economists are ill equipped to teach, let alone explain, the seismic nature of changes happening within the global economic landscape brought on mostly by the private finance sector since the 1960s, she says.
“Orthodox economists have it the wrong way around… they are looking at the monetary system through the wrong end of their theoretical telescopes,” Pettifor tells a room of academics and think-tankers during a lecture series at the London School of Economics this month.
Pettifor, who recently published a book called Just Money: how society can break the despotic power of finance, says economists aren’t able to differentiate between what money is traditionally used for – the buying and selling goods and services for the purpose of trade – and how it is used by the private sector banking system for rent-seeking and the collection of short-term profits.
“Economists are very different from real scientists, like the physicists and aeronautical engineers, who take responsibility for millions of airline passengers to be safe in the air and who take every precaution to prevent crashes,” Pettifor explains.
“Economists just shrug their shoulders as if these ongoing crises have nothing to do with them but are the responsibility of politicians, policy makers, subprime borrowers or the low-productivity workforce,” she says.
“Worse, they offer us no alternative to the current dominant economic model that has led to political upheaval, financial liberalisation, monetary policy dominance and fiscal austerity,” she continues.
“All, we are offered in the way of hope is something called secular stagnation,” Pettifor says to a receptive auditorium.
Pettifor singles out economists at the International Monetary Fund, the World Bank, the Organisation for Economic Co-operation and Development (OECD) and world treasuries for promoting “unfettered capital mobility” in the past, advice she highlights these organisations are now backtracking on.
The role economists have played in central banks’ journey towards unconventional monetary policy was discussed in InFinance recently here.
“The issue is that so many in the finance sector are content for economists to have a blind spot for modern finance,” she says.
Pettifor points out that it's ten years since the global financial crisis, which represented the catastrophic failure of both the global banking system and the global economy, and economic disorder is once again leading to political and social disorder.
“Western democracy and its political parties, central banks, its judicial system and civil society have collectively failed to protect society from the predatory behaviour of global financial markets, mostly rent seekers,” she says.
Economists are failing people by not accounting properly for the impact of modern finance in their modelling, Pettifor says.