An ignorance of the mathematical tools used by economists can result in surprisingly accurate results, writes Fintan O'Toole
WHAT'S THE difference between state variables, flow variables, stock variables and random variables?
I'm sorry, I haven't a clue.
Are econometric models with time-varying coefficients necessarily compatible with constancy? Pass.
Can the LIML estimator, derived from a least-squares criterion, be assimilated to the 2SLS estimator, obtained by an approximation that is asymptotically valid?
'Scuse please - no speaka da language.
As you can see, and as Marc Coleman helpfully informed readers of the Sunday Independent on Sunday, I don't know much about economics. If by economics you mean the set of mathematical tools that experts use to produce rough and usually inadequate models of the behaviour of economies, I share the almost complete ignorance of 99.99 per cent of the population. (And by the way, I just made up that statistic in a pathetic attempt to sound like an economist.)
I compensate for this inadequacy by refusing to believe that the application of these tools is a "science" or that it can be separated from politics. I believe, God help me, that useful economic descriptions of present situations and future choices will always be framed by questions of power. Ignoramus that I am, I'm interested in what gets measured - sustainability? Equality? Wellbeing? And whose interests are defined as being paramount.
It is true that this ignorance can produce surprisingly accurate results. When I started writing for this paper 20 years ago (not quite "the early eighties" as Marc Coleman would have it), I suggested the crisis in the public finances had as much to do with large-scale tax evasion by the wealthy as with government over-spending - a view derided by all the orthodox economists and politicians. I was wrong only to the extent that I underestimated the sheer scale of organised tax evasion subsequently revealed in the Ansbacher, Dirt and National Irish Bank inquiries.
I suppose this is simply the equivalent of the Grand National punter who sticks a pin in the racing sheet and comes up with the long-odds winner, while those in the know are tearing up their betting slips. In the same way, knowing nothing about economics helped me to write, in 2002, that the Celtic Tiger was essentially over and was being replaced by an unsustainable property-led boom. And to write, in 2005, that its levels of public and personal debt meant that the US economy was riding for a fall. And to suggest that the privatisations of Eircom and Aer Lingus would have unhappy consequences. And to whisper, long before the current problems, that the fad for public-private partnership schemes should be looked at much more critically than the prevalence of right-wing orthodoxy allows. And to predict, before it was established by an impeccably right-wing Minister, that the HSE would be a disaster.
Oddly, moreover, just as ignorance of economics is sometimes conducive to getting it right, "expertise" can lead to denial and absurdity. The right-wing orthodoxy, which pretends to be merely the neutral, scientific application of mathematical facts, is oddly impermeable to those facts that don't fit its world view. Hence, Marc Coleman's response in the Sunday Independent to my column here last week in which I reported the Organisation for Economic Co-Operation and Development's (OECD) contradiction of the cherished "fact" that the Irish public sector is bloated. Normally, OECD analyses, which tend to be pretty orthodox themselves, are embraced by mainstream economic analysts. This time, it let them down badly by pointing out that in fact the public sector has shrunk relative to the Irish economy as a whole.
So what brilliant counter-analysis does Marc Coleman have to offer? With what hard sums, what laser beam of technical insight, can he demolish the OECD's analysis? Only the dazzling revelation that the OECD is based in Paris and we all know that the French are a bit peculiar. So when that organisation says that much of the increase in public spending over the last decade "reflected a need to play catch-up from historically low-levels", it didn't mean that at all. Translated by Marc from funny French-speak, those words actually mean that Marc has always been right and that we didn't need to increase spending very much at all. If this is what economic expertise is about - read a statement that challenges your assumptions, turn it into one that confirms your assumptions and congratulate yourself on being right after all - I think I might just be able to get the hang of it.
As a backup, Marc suggests that the OECD gets it wrong by using comparisons based on Gross Domestic Product. He missed the bit where it says that even if you use an alternative measure, Gross National Income, Irish public spending is still relatively low. Likewise, Marc tells us, just 5 per cent of the increase in health spending since 1997 "went on patients". The rest went, wait for it, on paying and employing "public healthcare workers". Clearly, somewhere on Planet Economist, there is a system in which patients are treated by some method that does not involve the employment of doctors, nurses, or therapists.
I just wish I knew enough about economics to understand what it is.