Monday, February 20, 2012

Scheisshaus Economics II

Perhaps this post should be called "Scheisshaus Socio-Economics" but the combination of the unwieldy size with the desire for a tie-in with my previous post made for the change.  Plus, I suppose it's just a subset of economics, so its just as well.  The basic motive for the post is sort of an attempt to examine the "science" of economics and help describe how its development in the vacuum of academia has resulted in a long series of macroecomic decisions that are the root cause of so many of the societal woes the western world is experiencing about now.

Economics as a predictive science is highly effective.  The evolution of economic theory has allowed us to understand much better how the systems of the world operate.  Note that I say much better - no perfectly.  Economic prediction is much like weather prediction in that it is subject to huge amounts of error at times, largely because of our limited ability to know, track and understand all of the data that go "into the mix".  Nonetheless the modeling and widespread knowledge has allowed us to allocate resources in such a way as to increase the overall wealth of the world (or a country) astronomically. 

The problem is that we are not countries, or nations, or states, but individuals and families.  To a man who is newly laid off it is no comfort to know that the country overall is better off with his steel mill being relocated to the Pacific rim.  All he know is that the family is depending on him and he has no work and no prospects.  If you were  to ask the economist about him the answer would be that he should be retrained to work in "the service economy", or learn to work in an "intellectual innovative environment" or some such drivel.   THAT is where the vacuum in which the economist lives and works is such a problem. There are several fundamental problems with that. 

First: Because of the economist (and economic) driven changes in the world (together with their co-conspirators on Wall Street and the accompanying Washington DC based enablers) there is likely no job for which he can be quickly retrained.

Second: Even under the best of circumstances, the retraining for any position of consequence - or comparable income - is going to take two years at a minimum.  That is two whole years of a productive life just thrown away for nothing. Economically speaking he will be no more productive at the end of the retraining than he was at his old job at the steel mill.  So FIVE PERCENT of his 40-year working life has been discarded needlessly.

Third:  Chances are that, if there is any level of professional pride in him, that he will have been much more productive in his previous job as he will be in his new one - simply because of his level of expertise and experience.  If you have any doubt about that think about the next time you hire a professional and ask yourself if you would rather hire the rookie or the one with the proven track record.

Fourth:  With the changes in the world, economically speaking, being so many and so rapid, it is highly likely that the worker in question will have to go through the lay-off - retrain - relearn - gain proficiency cycle several times in a working life.  And each cycle is accompanied by the associated loss of productivity.  Add two more cycles and you have turned 40 VERY productive years into 31 somewhat productive ones.

All of this tumult - along with the not inconsiderable social costs - is ignored completely in the current world of economics.  It is all simply written off with the statement that "he is better off in the end" ignoring the fact that the data is simply not there to support that. 

I can appreciate that the social casts of this disruption are hard to measure and are in fact outside the economists area of practice - but the direct economic costs I have listed above are ignored completely as well.  The reason for this I can only guess.  The fact is that these (the economists) are VERY bright people.  Sadly based on the evidence presented above, it appears that they are either blind to any facts which do not fit the models for which they have been trained, or they intentionally ignore the facts simply because those who patronize their profession have their own motives for continuing to proceed as we have.

You Decide...