Pity the poor economics undergraduate. Seduced by descriptions of a discipline that “examines how a society provides for its needs”, he or she hands over their student loan and enters the tent with the others. When they wake up the next day, it’s all utility functions, general equilibrium models, externalities, stochastic variations, and trying remember what the difference between monetary and fiscal policy is.
When the jargon does pass into everyday speech, it’s usually a bad sign. Three years ago, few of us had ever heard of “subprimes” for instance. Sometimes though, a term may be technical but its meaning is clear, as in Paul Krugman’s response to our post about the OECD Economic Outlook. Krugman takes issue with Pier-Carlo’s Padoan’s definition of “contractionary”, and the fundamental disagreement is about aspects anybody reading the New York Times will understand, such as inflation and unemployment.
Too often however, debates about economics are conducted in a language that clouds the issues even for experts. So when they want to make themselves understood, they abandon the concepts and vocabulary of the profession and resort to analogy and metaphor.
The debate on the latest Outlook is no exception. Writing in the Financial Times, Martin Wolf launched a stinging attack (as the papers say to distinguish them from soothing attacks) on the Outlook’s recommendations, notably on the need for fiscal consolidation. To get his point across, he writes “Let us translate this proposal into ordinary language: ‘If you are unwilling to starve yourself when desperately ill, nobody will believe you would adopt a sensible diet when well.’ But might it not make sense to get better first?”
Nouriel Roubini uses an even more striking image to describe the mixture of bad loans and other dodgy ingredients that went into creating derivatives: “If you put rat meat and trichinosis-laced pig parts into your sausage, then combine it with lots of other kinds of sausage (each filled with equally nasty stuff), you haven’t solved the problem; you still have some pretty sickening sausage.” And once the financial system starts digesting that…
There’s nothing new about this. In an article about the need for clarity in discussing economic policy, Robert Skidelsky quotes Jonathan Swift, writing in the 18th century: “Through the contrivance and cunning of stock jobbers there hath been brought in such a complication of knavery and cozenage, such a mystery of iniquity, and such an unintelligible jargon of terms to involve it in, as were never known in any other age or country.”
Unfortunately, clarity doesn’t necessarily mean accuracy. Take a look at RBS’s accounts of itself in 2007 when the bank was going to hell in a hand basket. Below a bunch of photos of young people grinning inanely at percentage signs, we read that: “RBS is a responsible company. We carry out rigorous research so that we can be confident we know the issues that are most important to our stakeholders.” Presumably making money wasn’t one of them. To be fair to RBS, they do “recognise that some people’s financial needs may be better fulfilled by organisations outside the banking sector”. The British taxpayers who bailed them out for instance.
Taxpayers everywhere have a right to be informed in intelligible language about the trillions of dollars they’ve been asked for over the past couple of years, and to be told what happened to all the promises of profound change. For the time being though, words written by Rudyard Kipling almost a hundred years ago seem to sum up the situation: “Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew”. Was that the end of the bad old ways? Kipling goes on to bemoan the fact that “the burnt Fool’s bandaged finger goes wabbling back to the Fire”.
Future of capitalism debate with Robert Skidelsky at OECD Forum (Thursday 27 May 2010)