17 January 2024

EURACTIV: ‘A tribal clique’: Lagarde denounces economists at Davos

European Central Bank President Christine Lagarde launched a stinging attack on the economics profession on Wednesday (17 January), accusing analysts of having “blind faith” in their models, which often bear little connection to reality.

Speaking at an event entitled “How to Trust Economics” at the World Economic Forum in Davos, the ECB chief also suggested that economists constitute a “tribal clique” whose models largely discount the possibility of “exogenous shocks” such as pandemics, climate change-induced weather events, and sudden supply shortages – all of which have severely impacted Europe’s economy over the last few years.

Lagarde, a lawyer by training who previously served as the head of the International Monetary Fund, also noted that upon assuming her current position as ECB president in 2019 she explicitly warned its Governing Council and analysts to “beware of models”.

“Many economists are actually a tribal clique,” she said. “[They] are among the most tribal scientists that you can think of. They quote each other. They don’t go beyond that world. They feel comfortable in that world. And maybe models have something to do with it.”

“If we had more consultations with epidemiologists, if we had climate change scientists to help us with what’s coming up, if we were consulting a bit better with geologists, for instance, to properly appreciate what rare earths and resources are out there, I think we would be in a better position to actually understand these developments, project better, and be better economists.” 

‘Not helping the fight’

Lagarde’s fiery comments echo remarks she made in an interview with Bloomberg TV earlier on Wednesday, where she criticised money markets for “not helping the fight against inflation” by being too optimistic about rate cuts being introduced earlier than expected this year.

Money markets are currently pricing in six rate cuts of 25 basis points (0.25 percentage points) each over the course of 2024, with the first cut coming as early as March....

 more at EURACTIV

© EURACTIV