Economics

Before delving into it too much, however, I would like to point out that this post is not supposed to be an academic attack on anyone: I personally probably do these errors with equal—if not greater—frequency.

Over the last term, we had a wonderful visit from the governor of the Czech National Bank: Miroslav Singer who came to Oxford to do a mini-lecture on why Czech Republic should not enter the Euro-zone. I am at least skeptical to these conclusions, as in economics we often see that economists dig around for data until they manage to find data that supports their theories. One thing I did not realize until way after the lecture was that for instance Mr. Singer explains better GDP performance of Slovakia—after they adopted the Euro—by an increased government spending and hence greater debt. However, this misses that for instance United Kingdom the debt/GDP ratio has increased from the relatively low (at least when compared to other Western European countries) 44.5% in the year 2008 to 88.7% in the year 2013. [1] Meanwhile, GDP in UK has fallen from 2.8 billion USD to 2.4 over the same period. [2] Yes, I agree that in the UK the crisis has been much more severe than anywhere else in Europe, but these effects seem significant enough to make the following claim: even though it is a nice narrative that a budget deficit changes the GDP a lot, we have to be very skeptical about these claims, especially during a crisis. (If any economist is reading this, they will certainly wave around terms like spending multipliers, crises of liquidity, impact on “animal spirits”, if they favor this Keynes’ thought, but that would be sidetracking a little bit to what I really mean to say.)

Because ultimately, this made me realize an important thing:  even though I read about the limited impact of government policies on the GDP growth before this lecture and even though Mr. Signer himself pointed this very fact out during an informal dinner before the lecture, it is incredibly difficult to notice this inconsistency when overwhelmed with so many graphs and charts. And even though I probably got the best training in this—academic debating—I still have not noticed this problem quickly enough to react on it. Not to mention, that there are probably things that I would have not noticed even if I thought about them much more.

So what is my conclusion? There is too much data in economics and it would be not only great practice, but also very educational to have far fewer lectures in economics and much more debates with prepared topics and data. Of course, in the current setting of the world this is more of an idyllic hope rather than something that can actually be realized. Because it asks people not only to actively prepare, but also it requires them to have the courage to admit a problem (or even a mistake!), while schools—not just those in Czech Republic—teach us that admitting a mistake is a mistake in itself. Regardless, very few people will respect those that are willing to admit mistakes. But perhaps, we will reach this ideal one day.

[1] http://www.tradingeconomics.com/united-kingdom/government-debt-to-gdp

[2] http://www.tradingeconomics.com/united-kingdom/gdp