There are many professional fields that suck in talent from academia. Great scientific breakthroughs and artistic masterpieces are, often as not, the product of commercial endeavour. In many fields, universities and industry work side-by-side to the betterment of both sectors. Nowhere is this cooperation seem more in evidence than between economics and financial markets. Banks need economic predictions to operate. Because economies are very large and very alive, economists can’t operate in laboratories and need to head out into the real world if they are to apply their theories. So banks employ economists and everybody’s happy.
Sadly, it’s not as simple as that. In a typically insightful piece in The Times this morning, Sky News’s own Economics Editor Ed Conway lets the cat out of the bag: “It is a closely-guarded City secret that most professional economists are basically trumped-up marketing men. Banks do not hire these people because they want fiscal guidance or investment advice; they want free headlines.”
I spent over ten years employed as an economist in the City and, as far as I could make out, Ed is basically correct. Worse still, of those remaining City economists who are actually employed as economists, most are still not there to offer guidance or advice. They are simply there to explain and illuminate complex fiscal and investment ecosystems to the money men, who then invariably act off their own advice.
The reason for this dynamic lies in the simple fact that explanation and prediction are very different ball games. At least they are when you’re dealing with complex and evolving systems such as financial markets and market economies.
In a bank, the money men, otherwise known as traders or asset managers, are paid to predict fiscal and investment outcomes. Economists are paid to help the money men by explaining the processes at work. This is where we get to the heart of the unhealthy relationship between the City and the advancement of economics as a science.
The best scientific process starts with a prediction, also known as a hypothesis: this hypothesis is followed by a controlled test, an observation, a conclusion and finally a peer review. We learn a bit and come up with a new hypothesis, and the process repeats itself in a virtuous scientific cycle.
In financial markets, this process is split three ways. The market itself provides the peer review bit, quite well as it happens. Otherwise, predictions and testing are left to traders while the observation and conclusion are dealt with by economists. The scientific cycle is broken. No wonder financial economists never seem to learn anything!
But this is where almanis comes in. We are providing a market in which real economists can test their predictions without the need for a financial stake or access to a trading desk. A researcher anywhere in the world can see if their insights add or subtract from the common understanding by pitting their theories against the crowd. They can even draft almanis’s questions themselves.
Also, because almanis can separate economic and financial outcomes, we can test raw economic predictions without having to mess around with stocks and bonds as a conduit. Most importantly, we can begin to apply predictions to economic questions which tend not to bother financial markets: homelessness, refugees/migration, demographics etc…
So, if you’re an economist by training but have always been a bit wary of the City, this is perhaps the place for you to come.