« Defending markets | Main | Capitalism & the low-paid »

September 20, 2014



I have read this type of suggestion before and have discussed it with a few other non-economists. The response – universal rejection and horror. I will focus here on just one of the arguments for this reaction.

I am lucky enough to have earned enough money that financial advisers want to help me invest my savings. Their sales pitch has two main aspects:

An amateur can’t possibly know all of the investment options that are available, or which are best
An amateur will not know enough about risk to manage his financial assets safely.

As it happens, for me personally, I agree with the first but not the second. However, for the sake of argument let’s assume that both are true.

What financial advisers don’t appear to understand is that, from the perspective of an amateur, all their sales pitch does is to change the problem to:

An amateur can’t possibly know all of the financial adviser options available, or which are best
An amateur will not know enough about risk to manage his financial adviser(s) safely.

This is the same problem – just replacing the choice of assets with the choice of adviser. As it happens, there is more information available to an amateur on choice of assets than choice of advisers, so my choice is to avoid advisers. Of course, other people do choose the financial adviser option.

There are two visions of the role of experts here. The first is the expert's paternalistic vision where the expert makes the decisions for the amateur. The second is that the expert educates the amateur on how to make his own decisions. I would point out here that Investors Chronicle and your own column are mostly part of the second vision.

The same choice of vision is true with economics and economists. A few days ago you said:

“I suspect, therefore, that economists don't have to be that humble - at least once we recognise that the job of economists is not to give (futurological) advice to empty suits, but rather to help ordinary people make better choices”.

I agree with your quote. However, that is not consistent with the current post. Paternalism died with Mrs Thatcher’s election. It’s not coming back. The 21st Century economist’s role is to educate people effectively enough to help policy makers and ordinary people make better choices – not to tell them what to do via useless committees. Academic economists seem to be incapable of listening to what the rest of us want from them. They are a 21st Century equivalent of Arthur Scargill.

simon wren-lewis

My lawyer will be getting in touch. You will recognize him from his blue hair.



Lionel Hutz, Springfield's top lawyer, has brown hair.

Chris Purnell

"...it's difficult to estimate Laffer curves precisely."

Surely it's impossible to *estimate* anything precisely?

Alan Marin

The comment about the fiscal council"If the council gets into the idiot business of forecasting, it will soon discredit itself." is often made, but is is completely unrealisitic. Any "estimates" of budget deficits etc. in the next few years depend on forecasts of GDP, overseas demand for our exports and similar factors.

Churm Rincewind

But don't all your three "mechanisms" apply equally to Simon Wren Lewis?

The comments to this entry are closed.

blogs I like

Blog powered by Typepad