ECONOMISTS CANNOT SOLVE all of the world’s problems and it is time that they accept the limitations of some of their ideologies,such as flexible exchange rates.Governor of the Central Bank of Barbados Dr DeLisle Worrell unveiled What’s Wrong With Economics during the annual general meeting of the Barbados Economics Society, at The Savannah Hotel, Christ Church, where he put forward this position.“Over the past four decades I have become increasingly dismayed as I have observed the economics profession being taken over by a generation of economists who have lost sight of the limitations of what they can know with the help of the tools and techniques available to us,” he said.For example, Worrell contended, economists could not understand how small island states such as Barbados, Cayman Islands and The Bahamas have maintained their fixed exchange rate pegged to the United States dollar for years.“They deceive themselves into thinking that the exchange rate is a price. . . . The mistake is to believe that the exchange rate is the price of foreign exchange. . . . Rather, the exchange rate is what it says on the tin, a statement about the relation between one measure of value and another. . . . The only outcome of [a] flexible exchange rate is increased uncertainty, with no benefit whatsoever,” he said Wednesday.The Governor said although the disincentive of floating exchange rates was “obvious” to the layman, it seemed “preposterous” to modern economists.“It is the notion of flexible exchange rates that is ridiculous, not the acceptance of the superiority of pegged exchange arrangements. We should remember that the notion that flexible exchange rates are an acceptable way to manage the international economy has arisen to ascendency only in the last three decades or so, a period I believe will be seen by history as a dark age of economics,” Worrell posited. (SR)
