Academic Economists Reckon With Their Cluelessness

January 12, 2009 at 12:41 pm  ·  Category: Business Culture and Current Events, Economics

But if a doctor repeatedly deemed patients to be healthy that were soon found to have Stage Four cancer that was at least six years in the making, the doctor would be a likely candidate for a malpractice suit.  Yet we have heard nary a peep about the almost willful blindiness of economists to the crisis-in-its-making, with the result that their central role in policy development remains beyond question.

– Yves Smith, “Why So Little Self-Recrimination Among Economists?”, Naked Capitalism, January 12

You can’t just say, ‘I have a model for tremors that works great, I just can’t explain earthquakes.’

Kenneth Rogoff, a Harvard economist who has studied financial crises.

At the annual meeting of American Economists, most everyone refused to admit their failures to prepare or warn about the second worst crisis of the century.

I could find no shame in the halls of the San Francisco Hilton, the location at the annual meeting of American economists that just finished.  Mainstream economists from major universities dominate the meetings, and some of them are the anointed cream of the crop, including former Clinton, Bush and even Reagan advisers.

There was no session on the schedule about how the vast majority of economists should deal with their failure to anticipate or even seriously warn about the possibility that the second worst economic crisis of the last hundred years was imminent.

I heard no calls to reform educational curricula because of a crisis so threatening and surprising that it undermines, at least if the academicians were honest, the key assumptions of the economic theory currently being taught.

The sessions dedicated to what caused the crisis were filled, even those few sessions led by radical economists, who never saw turnouts for their events like the ones they just got.  But no one was accepting any responsibility.

I found no one fundamentally changing his or her mind about the value of economics, economists, or their own work.  No one questioned their contribution to the current frightening state of affairs, no one humbled by events.

Maybe I missed it all.  There were hundreds of sessions.  I asked others.  They hadn’t heard any mea culpas, either.

– Jeff Madrick, “How The Entire Economics Profession Failed”, The Daily Beast, January 8

Thus the economics profession slept comfortably as Wall Street was imploding.  One can only hope that the medical profession would do better, should America ever be struck by a serious epidemic.

– Uwe Reinhardt, “An Economist’s Mea Culpa”, The New York Times, Economix Blog, January 9

The fact that so few academic economists had the slightest clue that anything was amiss in the economy is a powerful indictment of the profession as it is currently practiced.  These guys know nothing about how the real economy actually works. 

Instead, they spend all day creating complex mathematical models that have NO relation to actual reality.  Let me be clear: the whole profession and most of the work done in it over the last 30 years is worthless.  It is built on the premise that the important economic variables can be measured and quantified and that therefore the methods of the natural sciences are appropriate to economics as well.  They can’t and they aren’t.  For a penetrating critique, see F.A. Hayek’s 1974 Nobel Prize acceptance speech “The Pretence of Knowledge”.

I wonder what they’ll do when confronting the fact that the entire structure of current theory, everything they’ve studied for years as undergraduates and graduates and written about as professors, their whole professional careers, amounts to one giant fraud.  Almost certainly they’ll just ignore that fact and keep doing what they’re doing.

Two weekends ago, the American Economic Association’s annual meeting was held at the San Francisco Hilton.  A number of observers have called the economists to account.  Any mea culpas?  Any introspection?  Not really.  Mostly just business as usual.

“Why So Little Self-Recrmination Among Economists?”, Naked Capitalism, January 12

“How The Entire Economics Profession Failed”, Jeff Madrick, The Daily Beast, January 8

“An Economist’s Mea Culpa”, Uwe Reinhardt, Princeton Economist, The New York Times, Economix Blog, January 9

“Paradigm Lost: Economists missed the brewing crisis. Now many are asking: How can we do better?”, Drake Bennett, The Boston Globe, December 21, 2008

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