Inside Job was recently shown on the Icelandic equivalent of
BBC 1. In the wake of it, bloggers and the public either made fun of the
economists and bankers behind the whole collapse or continued cursing them to
the “debts” of Hell. Frettabladid, a newspaper, published a comic of Tryggvi
Thor Herbertsson watching Inside Job but Herbertsson was the co-author of the “Financial
Stability In Iceland” report that notoriously changed its name to “Financial
Instability In Iceland” on Mishkin’s CV (the red ink text reads “impudent,
impertinent, unreasonable, unfair”. The guy behind Herbertsson (basically) asks
him what he’s watching).
Others, such as
Styrmir Gunnarsson, former editor of
Morgunbladid (one of the daily newspapers back home, now edited by David Oddsson, former PM during 1991-2005 and the governor of the Central Bank of Iceland 2005 - 2008), correctly pointed out
that one could hardly see who had been deeper in the pockets of bankers,
politicians or scholars. Furthermore, no serious discussion had been amongst scholars
about whether the economics departments of the universities of Iceland had
played any role in the economic collapse of Iceland.
Gunnarsson also writes: "Economists and economics professors,
especially at American universities, have repeatedly given all kinds of advices
and analysis to financial firms in last years and been rewarded handsomely. One
can therefore hardly expect many of them to have given warnings what was going on, although
they should have had more chances of understanding it rather than other people." (my italics).
Although Gunnarsson is spot on when he mentions the lack of
throughout discussion amongst academic economists about the role of economics
teaching behind the collapse, he is not running a home run on this point.
Exactly because so many economists, such as Mishkin and Herbertsson, were using
neoclassical economics that ignore the role of private debt in the economy, one cannot
expect them to understand the problems that were mounting up before the Global
Financial Crisis hit.
I mean seriously, can one expect economists that use
economics where marginal productivity of capital equals interest rates,
marginal productivity of labour equals wages, where one can add single demand
curves up to get a downward sloping market demand curve, where people are
walking calculators that can calculate in a splinter of a second their utility
of all possible choices even from now to eternity, where the economy is repeatedly modelled using a single eternal representative agent, where firms maximise profits by supplying their good into the market until marginal
revenues equal marginal costs, where debts and nominal figures are repeatedly
or naturally ignored, and so on, to understand that the real economy that we
live in is on the brink of collapse? No, no we cannot because all of this is incorrect! Never again may we
do the same mistake!
Economics at the
University of Iceland
I finished my undergraduate degree (BSc.) from the
University of Iceland in May 2008. Parallel to my studies, I worked as a part-time analyst at the
research department of Kaupthing Bank in Reykjavik.
Today, I must admit that I feel ashamed not to have noticed
the nonsense that I was being fed at the University. But even though I may
have noticed something, chances are that it would not have mattered. I
remembered that when my fellow students pointed out or asked about something
dodgy that was written on the whiteboard, the lecturer normally said that
economics were simplification of reality and assumptions had to be made to
reach conclusion that could then be applied to the economy. That’s all fair and well. But over simplification and
assumptions that do not apply in the real world can be seriously distorting for
the conclusion. One should never swallow without questions a conclusion that is
reached by using unrealistic assumptions that transform the world we are trying
to inform ourselves about into something that can never be thought of being anything
else than a shadow of reality, if it manages to be that. Assumptions matter, whatever Milton Friedman
said.
After I moved to England in September 2008 I came across
economics that I had never imagined existed (thank you Amazon.co.uk!). I
drowned myself in financial history, especially because Iceland was shoulder
deep in a financial crisis that nearly no one had anticipated – a psychiatrist publicly did it back in 2007 and was immediately made fun at by Icelandic economists
that said he didn't understand basic economics, just as they themselves didn't understand
basic psychiatry. "Let the economists to the economics and be quiet" they said.
I was shocked to see
how common financial crises were. In the undergrad program back at the
University of Iceland none of my lecturers had more than mentioned financial
crises. Throughout discussion about how or why they developed didn’t exist.
In April 2010, I sent an email to a prominent blogger who is
also the host of a talk show about whatever not – he interviewed my in January
2011 about the bleak future of the
Icelandic pension system. The email was a
comment I sent to him personally after he had blogged about economics in
Iceland and in it I criticised the economics department of University of
Iceland for basically being crap. He asked me if he
could post the email on his blog and I told him he could if he wanted to,
and so he did.
My former teachers weren’t all happy with it. Some of them
thanked me for the comment and said that it was well worth discussing within
the economics department. Others were straightforward sullen and told me I was unfair and off track.
The words of one them not only surprised me but quite frankly worried me:
“The main purpose of teaching economics [at the University
of Iceland] is to provide solid economics knowledge to students that can
suffice them as foundations to further studies at good universities outside of
Iceland. This we have succeeded at quite well, as you should know yourself.” (I had
finished my MSc. and started my PhD at this time at a "good university outside of Iceland").
But seriously, think about this for a second! The “main purpose of teaching economics at the University
of Iceland is to provide solid economics knowledge to students that can suffice
them as foundations to further studies at good universities outside of Iceland”
even though this economics is quite often straightforward mathematically wrong,
not applicable in the world we live in and to a large extent responsible for
the economical situation in the whole world, from failed privatisation in ex
Communist nations in Eastern Europe to underdeveloped economies in Africa all
the way to over-indebtedness of developed economies. What a track record! What a splendid economics to teach!
If this is seriously the case, then shame on the
economics department of the University of Iceland! How about teaching
economics that is not mathematically wrong, more applicable to analysing the
workings of the real world and understands the immorality and the financial
instability that is an unmistakable part of modern capitalistic economies, no matter if it helps the students into "good universities" abroad or not? How about teaching the economics of the real-world economies but not economics of dreamt-up, non-sensible and non-human
economies of neoclassical economics?
If you want to read economics of the real world, you should not attend the economics department of the University of Iceland but start by reading books such as those on this list: Which Books To Read About Economics. Debunking Economics by Steve Keen is a must read, it may well be the only book on economics you have to read in your entire life to know when to stop listening to economists if you feel like they are wasting your time, talking nonsense.
