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Right at this moment the lives of hundreds of millions of people, or at least their immediate economic prospects, are in the hands of a narrowing number of technocrats and politicians. That the technocrats have been given control in two Euro Zone countries is an affront to democracy. That the technocrats are, by and large, economists, does not bode well.

This turn of events has been necessitated, in my opinion, by the wrong headed construction of the Euro and by the ongoing bias of economic policy towards a privileged few. Neither are new trends or phenomena, but both have the heavy imprint of myopic and radical economic theory. That radical theory being what is commonly taught in our colleges in the form of mainstream, or orthodox, economics.

That the solution to the problems caused by the implementation of radical economic theory is being managed by economists trained in and adapted to that self same theory should cause the utmost concern to all who are interested in ethical or balanced social outcomes. This is a massive case of doubling down on the error in the hopes that the next wave of damage can somehow, miraculously, conjure from thin air a solution not so far imagined. Never before has market magic been so up front and center. Will it succeed?

I think it unlikely.

So do the credit markets where investors are voting with their feet every time an important Euro Zone minister speaks. Each speech seems to provoke deeper thought by investors, and each time the conclusion seems to be the same: these fools are not capable of thinking beyond the highly limited boundaries of orthodox economics, and are politically inept to boot. So: bail out now, even at a loss.

There is no need for me to dwell on the details of the daily of proposal, retreat, and revision that currently passes for economic policy making in the entire Western world. I want instead to focus our attention on the consequences – or what ought to be the consequences – for economists.

Having ascended to the throne in their role as experts, and never having been elected by the voters whose lives they will now deeply affect, we are now witnessing a crescendo of responsibility resting firmly on the profession’s shoulders. Note that I speak not of individuals, but of the collective profession. Gone are the days when economics could be thought – if it ever could – as some arcane academic backwater with little of no connection to society at large. If ever there was an exemplar of the immediacy of the profession’s collective responsibility the emergence of technocratic rule is it.

This issue cannot be ducked. Nor can it be swept aside as inappropriate. Nor can it be pushed forward in time to be dealt with in the polite realm of discussion and self regulated debate.

Economics has a collective, current, and urgent ethical responsibility to the society it serves in its role as producer of economic theory and policy. It had better get that relationship right. Or someone else will.

Unfortunately the profession is failing.

The signs are not favorable. Economists interested in the ethical relationship of economics to society are fewer in number than those interested in interpreting the ethical responsibility of economics more broadly as a content of theory issue. I agree that the profession has profound, and possibly fatal, content problems, but right now those are secondary. They are secondary not because of their impact, indeed I would argue that longer term the failure of economics centers on the ludicrous and radical nature of its orthodox theoretical foundation, but because of the primacy of the actual economic landscape. The profession has no time to clean up its act. It must marshal every ounce of its energy to ensure that its technocratic manifestation does no harm.

Let me turn this around: are all of you economists reading this utterly supportive of the policies being implemented by the technocrats? If not, does that not challenge the discipline to improve or change what it does? Now. Not ten years from now when the damage has been done.

I realize this is an impossible task. And perhaps a naive one under the best of circumstances. But that is not sufficient reason to avoid the confrontation necessary to fix the ethical relationship of the profession with society.

From what I can tell it is very difficult for economists to conceive of having customers. As I see it there is a market for economic ideas. People consume economic thinking as they seek to manage their lives and societies. Currently they can choose from a variety of ideas so as to ensure they make legitimate whatever ideological perspective informs their worldview. This production and consumption brings into being an ethical relationship. It creates a reliance by the consumers of those ideas on the expertise of the producers – i.e. economists as a group, not just as individuals.

Why not just as individuals?

Because were economists simply acting as individuals none of the professional constraints would come into play: erstwhile economists would not have to study, take examinations, or qualify as economists as such. They could simply announce their willingness to opine of economic like subjects, and offer advice. The old adage of “caveat emptor” would kick into gear and competition would weed out the worst offenders.

But this is not what goes on. The economics profession is a highly planned and organized collective. It produces students with a variety of qualifications, with each more selective qualification denoting a more intensive immersion in the subject and thus a higher degree of expertise. The pinnacle of this pyramid is, of course, the production of newly minted PhD students who go on to train the next generation.

So economics, like every other profession, presents to the public the face of a highly selective, rigorous, and thoroughly trained group. Society at large perceives this and reacts accordingly. In other words society imagines that each and every economist it absorbs has been vetted and found acceptable as a representative of economics as a whole.

Nothing, it turns out, could be further from the truth.

Hence the ethical crisis in economics.

And I mean crisis.

What the public receives is not a steady stream of fully qualified experts steeped in all aspects of economics, but a boat load of idiot savants. Over developed in one thing and starved of exposure to alternatives.

That one thing being the extraordinarily radical narrative spun by what is called orthodox theory.

This theory, or set of theories, is radical precisely because of its exclusion of humanity from its core, its dogmatic pursuit of notions of efficiency and equilibrium as if these were real world phenomena, and its insistence on ignoring cooperative, cultural, geographic, institutional, epistemological, technological, or other real world constraints at its inception. It ignores uncertainty despite the evidence around us. And it insists on avoiding the ramifications of complexity under all circumstances.

This is not to call orthodoxy wrong. It is simply to point out it has an enormously narrow view of what economics is, and that this narrow view is a radical departure from the actual economies and the artifacts found therein, that clutter the real world that our theories purport to explain.

If this radical interpretation is all that informs policy, then thinking like an economist is an extraordinarily risky pursuit: very few, if any, economies actually match its criteria, which is why economists trained in its tradition are generally hopeless at explaining or predicting events in real economies. They are, however, very good at explaining and predicting events within the narrow confines of their laboratory based artificial economies. Unfortunately, since there appears to be no overlap between said laboratories and the actual world, this ability is useless.

There are alternatives. Each more connected, in some way, with the real world. Both Marxist and Keynesian theories are designed to overcome the deficiencies of radical theory. Each has a more real world perspective. Each has something to offer a well rounded analyst or policy maker. Other perspectives offer yet further help: for instance, institutional and feminist ideas can inform policy and help connect action with real world outcomes in ways far more sensitive to reality than radical orthodoxy can.

This is not the place to debate those alternative ideas. It is the place, however, to highlight the ethical quandary: any person purporting to be an expert economists ought – yes ought – to be educated in those alternatives and be able to deploy them appropriately. If in no other way than to critique policy based on radical orthodoxy.

That the profession fails to produce a steady stream of such people is its greatest ongoing ethical failure. Economics, because of this failure, is profoundly anti-social. Indeed it is dangerous to the wellbeing of billions of people.

Given the extraordinary and biased forces within the education of economists, and radical orthodoxy’s stranglehold over the curriculum, an economic expert is, by and large, not an expert in economics.

So the public is being sold a bill of goods.

Economists have studied these kinds of asymmetrical relationships. Economics is selling lemons. Clever ones. It suffers from a demonstrable failure: it projects an image that it does not back up in fact. It has failed to self-regulate away these deficiencies. It is a collective that denies the properties of collectives. It is riven through with ethical problems. Its hegemony over economic expertise needs to be broken. Perhaps a healthy dose of competition is in order to force the profession to clean up its act.

Or, perhaps, the government should simply step in and impose rules so clarify things on the public’s behalf.

Oh. Wait. That would require a government and a public not addled by the radical theories sold by orthodoxy.

Rats.

Meanwhile let’s all hold our breath and hope that the technocrats, steeped as they are in the radical worldview, don’t ruin too many more lives. There’s enough blood on the profession’s hands already. We can’t stand too much more.

There isn’t much to say: anyone who thought that the appointment of a couple of tired, traditional, economists as heads of Greece and Italy respectively would cure anything was decidedly deluded. Lucas Papedemos and Mario Monti are not elected, so they have little, if any, democratic legitimacy and yet will implement drastic revisions to the social contracts and institutions of their nations. In my opinion this rule by technocrats is just another example of the attempt by a failed elite to impose its unpopular vision on Europe.

I am all in favor of European integration – in a global economy dominated by massive national or regional blocs, being Switzerland is a strategy that only the Swiss are likely to pull off. Being French, German, or Italian is a recipe for long term irrelevance. Maybe irrelevance is attractive at first, but later, when you need a voice on international standards, trade, or other similar issue, the big blocs will win every time. Thus an integrated Europe makes sense, as long as it doesn’t unravel into a bureaucratic elitist nightmare. Which it has. So, I am disgusted at the way in which the project has unfolded, and the way in which it is been constantly fudged by an elite unable or unwilling to describe the costs or benefits to voters.

Electorates are far too sensible for this. Eventually – and it may take a long time – they will reject the entire enterprise if they see no benefit, or fail to see the need for duplicative layers of bureaucrats all of whom meddle incessantly, and none of whom seem to add value to the average person’s life.

The crisis has exposed the failings of a poorly thought through system. The politicians thought that they could tighten the union slowly without foregoing national sovereignty. Among other things this meant they could set up a European Central Bank, but not an integrated fiscal policy. Central banks, after all, are vastly abstract to the average voter and don’t add a lot of stupid red tape to everyday life. Fiscal policy, on the other hand, is intimately tied up with practical local decisions like taxes, and no one wanted to give up the right to decide what gets spent in their own back yard. The idea of a bunch of distant bureaucrats in Brussels – who had hardly covered themselves with glory – making those decisions was too tough to sell to voters. So no one tried.

We thus ended up with a Euro zone hobbled from the start and whose currency was priced by international bankers and other investors as if it were the old German mark. Yes France had a AAA rating, but everyone knew that it was the German economy that provided the stability investors relied upon.

So when a crisis erupted and the Germans steadfastly refused to react by inflating their domestic demand to eliminate their trade imbalance, or by refusing to underwrite the debt of the so-called periphery nations things were always destined to go belly up.

The result has been a race to the bottom. Ferocious domestic deflation is being imposed in the name of recapturing competitiveness with the Germans. Without currency devaluation to act as a buffer, nations like the Greeks are being asked to absorb the entire adjustment via domestic wage and price shifts that threaten livelihoods. They also threaten political stability: it is no accident that we are seeing a rapid revival of European extremism on both the left and right. Indeed it is this political aspect to the crisis that caused the appointment of the technocrats.

They will not succeed.

It is only a few days since we were all told that the arrival of the technocrats would solve the crisis and already the credit market has voted: it is leaving the Euro in droves.

Any sensible investor should get out of the Euro. Now. There is only one way this ends – as currently written – and that is more crisis. Today we saw the debt of every nation bar Germany rise in cost. Even AAA nations like the Netherlands and France have seen their interest rates rise alarmingly into territory that suggests the markets no longer see them as AAA. Meanwhile, Italy’s rates are back in the above 7% zone that we were all told last week was intolerable.

Evidently the credit markets don’t think of the technocrats as a solution.

Quite right too. They are not.

They are not for two primary reasons:

1. The first part of any true solution is for there to be a Euro Zone bank of last resort to underwrite the debt of all nations. Since the European Central Bank has refused to play this role, the markets are sensibly reasoning that crisis can still run out of control. Hence the urge to sell rather than buy Euro Zone debt.
2. The second is that austerity will aggravate not ameliorate the crisis. As nation after nation cuts desperately to reduce its debt it will plunge its economy into a downward spiral. The reduction in activity will make it harder to pay down debt. Ratios will worsen rather than improve. More austerity will be needed. Yet austerity is what the technocrats have decided is needed.

This is why the arrival of the technocrats is no solution: their policies are pernicious, counter productive, and fatally flawed. They represent disproven ideas. They will implement them anyway and, most likely, fail. Only luck, not theory, can help them succeed.

Apparently the markets understand this. Unfortunately the elites of Europe don’t.

Never has a continent been so horribly led, advised or managed.

Except for the US in recent years, of course.

More on that later.