Urjit Patel, governor of the Reserve Bank of India (RBI), gestures as he speaks during a news conference in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Urjit Patel Says It’s Not An Economist’s Job To Predict Crises

Reserve Bank of India governor Urjit Patel today defended economists saying their core mission is not to forecast crises but to explain how mankind behaves.

“The fundamental mission of economists is not to forecast crises but to explain how the mankind behaves in the ordinary business of life and in doing so they do warn of crisis formations, suggest pre-emptive strategies and formulate mitigating policies that address those crises that slip through macroeconomic surveillance,” Patel said while addressing the students of a business school in Mumbai. “Their greatest contribution to policymaking may take place through less direct routes like research which nudge policymakers to think about economic problems, challenges in newer, different ways.”

Economists had borne the brunt of criticism for the 2008 global financial crisis, with many saying they failed to predict the catastrophe on time. The problem began in the U.S. following the subprime mortgage crisis that led to the collapse of the global economy, which it’s yet to fully recover even after a decade.

Patel noted that economists are vital in shaping public perceptions and discourses. They also play a key role in designing strategic policies for the corporate sector, central banks, governments and multilateral institutions, he said. But ironically all these go very often unsung, he added.

Blaming economists for the ills plaguing the global economy is “patently unfair”, Patel said equating them to doctors who understand diseases but cannot predict when a person will fall sick.

He cited the example of the American economist Hyman Philip Minsky who laboured in obscurity from the start of his academic career in the 1950s to his death in 1996. Minsky’s research about financial crises and their causes attracted little mainstream attention during his life time, Patel said, adding “it was only in 2007 when the subprime mortgage crisis erupted, that everyone started turning to his writings as they tried to make sense of the chaos engulfing global financial markets.”

Since then, the beginning of a financial crisis is now often referred to as the ‘Minsky moment’, Patel said.

He also lauded the government for landmark financial legislations--amending the RBI Act that mandated it to set an inflation target; the bankruptcy law and the rollout of GST--saying these three reforms will shape the economy going forward.