The economist J.M. Keynes made a lot of money from his investments, but
being an economist, won't necessarily make you a rich man, or even a successful
businessman. There's something called the "Fallacy of Composition", that suggests that although some
people can succeed with a particular business, it doesn't mean that everyone
can succeed with it.
The American economist, J.K. Galbraith, said that "economics is extremely useful as a form of
employment for economists." For decades, economists played an
important role in creating the conditions for the 2008 financial crisis and
dozens of smaller crises that came before it, arising mainly from financial
deregulation. The 1982, Third World debt crises and the banking crises in
Chile; the 1995 Mexican pesos crises; the 1998 Russian crises and the banking
crises in Sweden, Finland and Norway, following financial deregulations in the
late 1980s. Most economists didn't predict or foresee the 2008 financial crises
that was completely man-made. It didn't arise from any war or economic
depression but it nearly collapsed the whole capitalist financial system. It
was the equivalent of financial markets getting mad cow disease.
The ‘Sage of Omaha’, Warren
Buffet, called 'derivatives", the
financial weapons of mass destruction, whereas, Alan Greenspan, of the U.S.
Fed, thought they made markets more efficient. The complexity of these new
financial products - Asset Backed
Securities; Collateralized Debt Obligations and Credit Default Swaps, is exactly
what made them dangerous.
In 2013, the Nobel Prize in Economics, was shared by two American
economists who held completely opposing views about the causes of the 2008
financial crises. Eugene Fama, who believes in the "efficient markets hypotheses" argued that financial markets
were a casualty of the recession and did not cause it. He argued that the U.S.
government made lending and credit too easy to obtain and that banks acted
rationally, in responding to the incentives put in place by an interfering
government. In contrast, Robert Shiller, the other prize winner, stressed how
investors can be swayed by psychology and irrational exuberance, which affects
the workings of the market.
In a TV interview in 1995, Buffet said: "I personally think that society is responsible for a very significant
percentage of what I have earned. If you stick me down in the middle of
Bangladesh or Peru or someplace, you'll find out how much this talent is going
to produce in the wrong kind of soil. I will be struggling thirty years later.
I work in a market system that happens to mean that everyone can succeed within
it."
Unfortunately, not everyone does succeed in the capitalist market system
and there's a lot of evidence that markets are routinely rigged in favour of
the rich and that there's mis-selling of financial products and lies told to
regulators. Markets may also fail to produce socially optimal outcomes.