‘Economics’ is not your friend

WE have been conditioned by the government and the press to wait with breathless anticipation every bit of news and data under the broad banner of “economics.” Then after the information makes the front page, dozens of experts and pundits rise up to explain what it all means.

John Kenneth Galbraith, a 20th-century economic icon, said: “Economics is extremely useful as a form of employment for economists.” That is too harsh, in our opinion, but there is some truth to it. A European think-tank forecast that overseas remittances to the Philippines would fall by 5.5 percent in January 2021. The actual result was 1.7 percent from January 2020.

Being right or wrong usually doesn’t matter if you’re an economist. It is almost like being a movie critic. When the 1997 Star Wars film A New Hope opened, New York Magazine film critic John Simon wrote: “O dull new world. It is all as exciting as last year’s weather reports.” Simon continued to write until he died at 94 in 2019. The European economic group will continue to forecast. But Simon offered opinion and economics is advertised as a science.

When Moses brought the tablets down from Mt. Sinai, he probably figured it was a straightforward proposition, especially when it came to the “Thou shall not….” commandments. Someone probably raised his hand and asked, “Will it be OK to kill Hitler?” “Can I steal bread to feed my starving children?” “My wife is an OFW in Saudi; can I have a girlfriend?”

However, the economic data is supposed to be taken without question, especially if it can be used for politics. The rule is that in every country where there are free elections, the current administration cannot take credit for any “positive” economic result and is completely responsible for all the negatives.

We are told to believe that the science of economics gives us set and universal parameters to measure what is happening in an economy. The truth of “2+2 = 4” is universal and translates into all languages. However, “inflation” and “economic growth” are not characterized by a standard definition from place to place, or even over time.

The US Consumer Price Index was determined by comparing the price of a fixed basket of goods and services spanning two different periods. The US Congress adopted the view that the CPI should reflect changes in the cost to maintain a constant standard of living. Consequently, the CPI has evolved into a cost-of-living index (COLI).

The CPI then “evolved” to reflect changes “in the quality of goods and substitution.” “Substitution, the change in purchases by consumers in response to price changes, changes the relative weighing of the goods in the basket.”

“Critics view the methodological changes and the switch to a COLI as a purposeful manipulation that allows the US government to report a lower CPI.”

The same thing happens with economic or gross domestic product growth. GDP can be calculated using three different methods or a combination of all. The “Expenditure Method” adds Personal/government Consumption plus Investment plus Net Exports. “Income Method” totals Wages plus Rental Rate on Capital plus Corporate Profits. Finally, economists can use the “Production Method,” which is Final Value of All Goods and Services Produced plus the Intermediate Costs.

“Economics makes homeopath and untested alternative healers look empirical and scientific,” says Nassim Nicholas Taleb. That may be too harsh also. But neither is what we are told in economics the “divine truth.”