Predicting crises: Traditional view of economic crises no longer valid, says Desai

‘The discipline of economics has abandoned empirical study of economic reality’

LAHORE:

The most sophisticated econometric models cannot be relied upon for accurate prediction of economic cycles, Indian-born British politician and economics professor Lord Meghnad Desai said on Monday.

He was speaking at a seminar, Why Economists Failed to Predict the Crisis and How to Avoid the Next One, at the Punjab University Pakistan Study Centre (PUPSC). The event was organised by the PUPSC in collaboration with the Oxford University Press.

Desai said market equilibrium, or lack thereof, was determined by a complex interplay of macro and micro economic variables like prices, wages, credit, profits, and investment and employment levels. He said the economic crisis of 2007-08 too was an outcome of these relationships. He said traditionally economic cycles had been seen to recur after a 7-8 year (short term) period or 30-40 years (long term) period. However, he added that the traditional view was no longer valid because of the globalisation of finance and trade following the establishment of the World Trade Organisation (WTO) in 1994.

He said even the most sophisticated economic models were not reliable for accurately predicting economic cycles.

Desai said that he had been teaching economics for 50 years. He said he had seen the discipline undergo a transformation in the way it approached its object of study. He said mainstream economics had abandoned its earlier focus on the empirical study of economic reality. Instead, he added, it now took as given some (a priori) principles about the object [economy] and studied it on the basis of these principles.

Later, Prof Aqdas Ali Kazmi discussed Desai’s latest book titled, Hubris. He said the book was a study of the 2007-08 economic recession and added that it had explained why mainstream economics failed to predict the crisis. His talk was followed by a discussion session where Professor Desai took questions from the audience and a book signing ceremony.

Professor Desai is a member of the British House of Lords. He is an active member of the British Labour Party. He is also a professor emeritus at the London School of Economics. He has written extensively on a diverse range of topics like popular culture and applied econometrics. Professor Desai’s wife Kishwar Desai and Amina Sayyid of the Oxford University Press were also present at the occasion.

Published in The Express Tribune, August 4^th, 2015.