An arrogant profession humbled?


A leading article in this week’s Economist magazine is on what went wrong with economics:-

OF ALL the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself. A few years ago, the dismal science was being acclaimed as a way of explaining ever more forms of human behaviour, from drug-dealing to sumo-wrestling. Wall Street ransacked the best universities for game theorists and options modellers. And on the public stage, economists were seen as far more trustworthy than politicians. John McCain joked that Alan Greenspan, then chairman of the Federal Reserve, was so indispensable that if he died, the president should “prop him up and put a pair of dark glasses on him.”

In the wake of the biggest economic calamity in 80 years that reputation has taken a beating. In the public mind an arrogant profession has been humbled.

Worth a read in my view.

The article concludes:-

Economists need to reach out from their specialised silos: macroeconomists must understand finance, and finance professors need to think harder about the context within which markets work. And everybody needs to work harder on understanding asset bubbles and what happens when they burst. For in the end economists are social scientists, trying to understand the real world. And the financial crisis has changed that world.

All too true and we need people who can help us understand what is happening and the impact.

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7 responses to “An arrogant profession humbled?

  1. Read the Tract: “Plea for a New World Economic Order.”, which explains the nature and causes of economic depressions and proposes a plausible alternative solution.

  2. Peter. This is the bit from the economist article I thought most useful.

    “In its crudest form—the idea that economics as a whole is discredited—the current backlash has gone far too far. If ignorance allowed investors and politicians to exaggerate the virtues of economics, it now blinds them to its benefits. Economics is less a slavish creed than a prism through which to understand the world. It is a broad canon, stretching from theories to explain how prices are determined to how economies grow. Much of that body of knowledge has no link to the financial crisis and remains as useful as ever.

    And if economics as a broad discipline deserves a robust defence, so does the free-market paradigm. Too many people, especially in Europe, equate mistakes made by economists with a failure of economic liberalism. Their logic seems to be that if economists got things wrong, then politicians will do better. That is a false—and dangerous—conclusion. ”

    I think people need to realise that most of economics is unaffected by the problems in macro and finance and that most economic policy advice is still valuable.

  3. Paul

    I agree with your comment, thus my question mark in the title.

    Actually I tend not to think of economists as arrogant, but rather as bright people who sometimes do not explain themselves as clearly as they might and with infinite shades of opinion on any given subject.

    In other words remarkably like many other people, i. e. human

  4. Although People Are Very Optimists Now I Proved That The Crash Is Still in the Cards:

    Read: Prepare for the Crash, The Age of Turbulence.

    Plea for a New World Economic Order.

  5. The article: Ben “Systemic Risk” Bernanke proves that Bernanke knowingly maintained a strict monetary policy long after he knew of the sub prime problem as he knew it would cause of the “Depression”.

    It shows that he probably engineered it on purpose!

    If you want to sleep tonight, Don’t Read It!

    “In contradiction to the prevalent view of the time, that money and monetary policy played at most a purely passive role in the Depression, Friedman and Schwartz argued that “the [economic] contraction is in fact a tragic testimonial to the importance of monetary forces” (Friedman and Schwartz, 1963, p. 300).
    …..

    The slowdown in economic activity, together with high interest rates, was in all likelihood the most important source of the stock market crash that followed in October.

    In other words, the market crash, rather than being the cause of the Depression, as popular legend has it, was in fact largely the result of an economic slowdown and the inappropriate monetary policies that preceded it.

    Of course, the stock market crash only worsened the economic situation, hurting consumer and business confidence and contributing to a still deeper downturn in 1930.”

    Governor Ben S. Bernanke
    Money, Gold, and the Great Depression.
    At the H. Parker Willis Lecture in Economic Policy, Washington and Lee University,
    Lexington, Virginia.
    March 2nd, 2004

    You can read also: Preparing for the Crash, The Age of Turbulence Update: 22/07/09., which tries to accomplish Greenspan Mission Impossible:

    That is mission impossible. Indeed, the international financial community has made numerous efforts in recent years to establish such oversight, but none prevented or ameliorated the crisis that began last summer. Much as we might wish otherwise, policy makers cannot reliably anticipate financial or economic shocks or the consequences of economic imbalances. Financial crises are characterised by discontinuous breaks in market pricing the timing of which by definition must be unanticipated – if people see them coming, then the markets arbitrage them away.”

    Alan Greenspan
    The Age of Turbulence: Adventures in a New World [Economic Order?].

    Plea for a New World Economic Order. explains the nature and causes of economic depressions and proposes a plausible alternative solution.

  6. Pingback: worth seeing

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