Assuming Economics

Posted on November 27, 2011 by msjs0315

This morning I’m avoiding mycarefully constructed to-do list by reading TheEconomist, or at least parts of it.
There’s a bad joke abouteconomists in which one of their lot is theorizing how to open a can of tunafish in the middle of nowhere that ends with the line, “Assume we have a canopener.”  And although the joke isdecades old, economists still fall into the trap of assuming stuff that’s nearimpossible to manifest as they attempt to share the ‘wisdom’ of theirprofession.
(Full confession: I was apsychology and economics major in college and worked in an economics think tankfor two years as I pondered whether my graduate degree would be in business oreconomics.  I went with the MBA, largelyon the basis of a larger expected income flow, but also because I found my workenvironment just too dizzyingly surreal.)
Anyway,back to The Economist.  Here’s Exhibit A, a piece about fracking.
“It doesappear that fracking can cause earthquakes. But so can geothermal energyproduction and other parts of the oil and gas production process. Whereverfluids are injected into deep wells, that is a risk. It warrants strict regulation and further study. It is not,however, a reason to shut down a promising industry.”
…
“[T]he industry’s promiseshould not obscure its dangers, especially when it comes to the fuel itprovides…The only way of ensuring thatdoes not happen is to price fossil fuels to cover the cost of the environmentaldamage they do.”  [emphasisadded]
Huh?
Strictregulation?  Environmental-damage basedenergy pricing? On what planet does TheEconomist assume these will occur? 
Exhibit B, in myview, is this article on the euro.
“If the ECB is tofulfil its mandate of price stability, it must prevent prices falling.” 
Except that sovereigndebt prices are already falling and there’s little the European Central Bankcan do about it.  And no amount of ECB actionis going to rid Europe of that load of debt. 
The articlesort of acknowledges this a bit later and then proposes:
“It also meanscreating a [euro] debt instrument that investors can believe in. And thatrequires a political bargain” that would essentially require stronger Eurozonecountries to support weaker ones for the next 20-30 years. 
And the strongerEurozone countries will sell this to their people how, exactly?  Despite the common currency, the Eurozone isstill a collection of sovereign nations, each with its unique internal makeupand external position in the ‘zone.  I’msure The Economist knows this, but itseems to have been forgotten here.
(As a final aside, Isee the world pointing fingers at the US in general and the supercommittee inparticular for failing to address the country’s debt problems.  But the ‘zone reportedly on the brink ofdisaster and it hasn’t figured a way out, either.)
And on that note, Imust leave the world of economics where anything can be assumed and get back tothe less nuanced reality of my to-do list.  

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