The new voodoo economics

Some of my best friends are economists, but let’s face it: Economics is truly a dismal science, a daily grind of big media news and micro bits of incremental data, endless speculations, forecasts, analyses, grand theories, monumental ideological battles and shortterm market forecasts, all signifying nothing, or almost nothing.

As recently as last month, the following news story appeared. “The Canadian dollar is expected to dip in the short term but stabilize in 12 months, a Reuters poll showed.” Bearish bets on the dollar were at a new high, the story said, with some forecasters expecting the dollar to trail down to 73 or even 71 U.S. cents within a month or two.

This week, in defiance of the June economic consensus, the Canadian dollar traded at 80 cents. The explanations for this surprise turn in the loonie and its implications are a complex conceptual house of mirrors. It goes something like this: Economists at the International Monetary Fund produced a new forecast Monday that downgraded U.S. growth and set Canada’s GDP growth rate as the fastest among G7 nations amid speculation oil prices might rise and interest rates are going up, even though inflation is flat but manufacturing seems to be picking up, and even with lower U.S. growth Canada could still do well even if rates go up to cool inflation that may or may not be happening and will likely not happen all that much if the dollar stays at 80 cents and helps lower Canadian prices for imports and slows demand for Canadian exports.

No wonder a recent commentary by a U.S. academic called economics The New Astrology. Alan Jay Levinovitz, an assistant professor of philosophy and religion at James Madison University in Virginia, said economists wangled their way to power and prestige by building castles around mathematics. “By fetishizing mathematical models, economists turned economics into a highly paid pseudoscience,” says Levinovitz.

Economists are among the highest-profile and bestremunerated social science professionals, despite their dismal track record at predictions, long and short term. Levinovitz cites a typical example similar to the Reuters June survey on the Canadian

More than economic forecasting is at stake. What Levinovitz calls the pseudoscience of math-driven economics is a companion to all manner of economic theorizing that shapes policies. The ideological flexibility of economic theory, coupled with its math culture, generates endless rationales for government interventions, taxation levels, directives and regulation.

Here, briefly, are three recent examples of economics at work as a generator of state economic activism:

The Google/Amazon/Facebook monopoly scares, described on this page recently by Kevin Libin, are the product of warped economic theorizing accompanied by the industry.

Amazon — and Google and Facebook — are classic innovators. The fastest to properly serve a market with products and services wins temporary monopoly power, but such power does not last. Classical economist Joseph Schumpeter (who popularized the concept of creative destruction in economics) wrote that “Every successful corner may spell monopoly for the moment.” The question is not when Amazon will take over the world, but how soon competition will take down Amazon.

Artificial Intelligence: Economic fear mongering surrounds AI. Robots, we are warned, will kill millions of jobs and create a generation of unemployables who must now be protected against the threat. But the economic alarms are likely false. Jerry Kaplan, an adjunct professor at Stanford University, discounts such fears. Kaplan, the author of Artificial Intelligence: What Everyone Needs to Know, said in a recent commentary that “if history is a guide, this remarkable technology won’t spell the end of work.” Instead, AI will change work habits and patterns and improve living standards “in the familiar capitalist cycle of creation and destruction.”

Innovation and inequality: A recent paper from Ontario’s Institute for Competitiveness and Prosperity hailed government attempts to boost innovation, but warned that recent research “has established a link between increased innovation and higher inequality.” It called for redistribution of wealth from innovators, although the link between innovation and inequality turns out to be a 2016 paper filled with partial causality and positive associations based on a lot of what Paul Romer would call “mathiness.” message to businesses and investors.

Canada risks being labelled a place where it is simply too difficult to get things done, or worse, a place where regulatory approvals are not worth the paper they are printed on. The result: businesses and investors taking their ideas, their people and their capital elsewhere.

It’s already started. Over the past two years, some of the largest energy companies in the world have passed over Canada for more investor-friendly jurisdictions. The cost to Canada has been billions of dollars in investment and tens of thousands of lost jobs.

The Independent Contractors and Businesses Association (ICBA) has launched a campaign asking Canadians to go to Get2Yes.ICBA.ca and send an email to Desjardins CEO Guy Cormier asking him to reconsider. Maybe hearing from thousands of people across Canada will cause Desjardins to rethink its position. In recent years, ICBA has placed a sizable amount of our group benefit insurance business with Desjardins; given their decision, our business relationship is coming to an end.

But this is about more than Desjardins. If we expect the wealth, innovation and investment that flows from harnessing Canada’s rich natural resources to flow as freely as it did before the decline in commodity prices, everyone should be standing up for Canadian energy, Canadian jobs and made-inCanada decisions that benefit us all.