Ignorance of economics is not bliss.

The persistence of high levels of unemployment and the forthcoming presidential elections in US have made the debate of economic policies vitriolic. In democracy individual citizens by their political choices affect the economy and when political passions lead to decisions without a full appreciation of facts, economic conditions can go from bad to worse. In anxious times the public look for signs of improvement. On September 1st, recent statistics were interpreted to indicate that slow recovery will continue and there will be no double dip. Next day the newly released statistics -zero growth in employment suggested the economy can stall. Given Yogi Berras dictum It is hard to predict, particularly the future, why are predictions made and why are they believed? John Kay writes: If you ask why economists persist in making predictions despite these difficulties, the answer is that few do. Yet that still leaves a vocal minority who have responded cynically to the insatiable demand for forecasts. Mostly they are employed in the financial sector for their entertainment value rather than their advice. Kay is a very scholarly commentator but he is too critical of the insatiable demand for forecasts. The outcomes of many decisions we make now are contingent on state of the economy in the future and it creates a need to know. We are condemned to look forward even if we are blind. Focusing on the controversy about Ben Bernanke and the Federal Reserve, James Stewart argues that even presidential candidates are ill informed. Far from opaque as some of them claim, Federal Reserve publishes detailed minutes of its Board Meetings and, on every Thursday, its balance sheet. Robert Hall, a senior fellow of the conservative Hoover Institution and professor of economics at Stanford University is emphatic in denying that Fed policies will unleash inflation. If presidential candidates with all their advisors and consultants cannot get their facts straight, how can one expect ordinary citizens immersed in their daily struggles to keep up with them? Is their economic illiteracy due to failure of the academics community and public institutions to communicate properly or is it unavoidable given the complexity of modern economies? Every science is incomplete and there are unsettled questions that can be debated. Each begins with unrealistic assumptions and then develops on it a more realistic superstructure. Macroeconomics considers the economy as a whole and studies the level and trends in employment and inflation. Macroeconomists are divided into two broadly defined groups who disagree on the fundamentals. Periodically one side claims that the response of the economy justified their views only to find subsequent developments

undermining their theories. This should not distract the public from the consensus that exists in many other areas of economic analysis. In certain sciences like medicine and economics, the current state of knowledge affects our decisions while paradigm changes in others can be ignored. In an earlier posting in this Forum I argued that economists are partly to blame for lack of public appreciation of their analysis as they lag behind those in other sciences in explaining their theories to the general public. Liberal political and economic theories crown the individuals but give low priority to opening the windows of their palaces. References: John Kay, The realm dismal in its rituals of rigour, Financial Times August 26, 2011. p.9 Rama Ramachandran, Economic illiteracy among public: should the profession share the blame, http://visualeconomicanalysis.info/forums/index.php?topic=77.0 James B. Stewart, Lot of Vitriol for Fed Chief, Despite Facts,: The New York Times, September 3, 2011. P.B1&6.