What went wrong with economics

http://www.economist.com/opinion/displayStory.cfm?story_id=14031376&source=hptextfeature

by danh • 17 years ago

32 37 17 years ago

teilo• 17 years ago

But does that mean that Keynsianism is going to die? Not a chance. Keynsians control the entire monetary system. It does not matter how often their theories are debunked by history itself. They are the ones in power, and so they will continue to do what they do best: Rob from the poor and give to the rich through the hidden tax of inflation born of deficit spending and the centralized control of interest rates.

padmanabhan01• 17 years ago

and by printing currency out of thin air.

monological• 17 years ago

greed

voisine• 17 years ago

Nothing went wrong with economics. The austrian school of economics predicted the great depression, the economic failure of communism, the '01 nasdaq crash, and the recent housing bubble. If you keep looking to the keynsians after the stagflation of the 70's completely refuted the core tenant of their entire economic view, well, you've got no one to blame but yourself.

philwelch5• 17 years ago

Economics isn't not a battle between Keynes and the Austrians, though. There are numerous neoclassical schools with varying degrees of prominence. Greenspan, for instance, was a monetarist, not a Keynesian. Other fields include behavioral economics. Meanwhile, while the early Austrian School provided a lot of important insights, most of them have been accepted by the neoclassicals.

Most of "Austrian economics" today is merely an apologia for anarcho-capitalism, popular among libertarians who have studied the early Austrians, lack grounding in economics otherwise, and are more interested in rationalizing libertarian economic policies than honestly learning economics.

gasull• 17 years ago

while the early Austrian School provided a lot of important insights, most of them have been accepted by the neoclassicals.

Neoclassicals are using some of the rhetoric of the Austrian School, but they are doing the opposite in almost every single issue: central banking, fractional-reserve banking, intellectual property, etc.

dantheman• 17 years ago

One of the key insights of the Austrian school is that historical mathematical analysis while useful for entrepreneurs is not economic law and is merely a forecast. You cannot predict accurately what lowering the interest rate will do, you can say that printing money causes inflation, but cannot specify how prices will actually change.

kirubakaran• 17 years ago

Are there some interesting engaging books that I can read to honestly learn about economics without having to pick a side or hold political beliefs? (something that will be really useful for me to understand the world better... not something that will attempt to convert me...)

trominos3• 17 years ago

This comment is completely useless without some kind of citation or reference. (It's also annoyingly smug.)

tc10• 17 years ago

Sometimes you just assume that people have kept their eyes open -- or at least have Google at their disposal.

gaika• 17 years ago

Same happened before with chemestry / alchemy and astronomy / astrology - there were alchemists that were trying to please their king with promises of gold out of nothing or horoscopes, and there were scientists, that used it as a source of funding for their real research. Chemistry and Astronomy won, unfortunately our economic alchemy refuses to die.

redcap2• 17 years ago

But of course, with the current financial system it looks as though large financial companies have managed to create wealth out of nothing or horoscopes.

asdlfj2sd33• 17 years ago

I'm not sure anything is broken, we just had plain old regulatory capture.

Greenspan himself admitted he thought that people would protect their own self interest. But those people get bonuses if their risks pay off and have no real downside if they lose. They are gambling with other people's money, not their own money.

And it's not as if self interest and lack of government bailouts prevent the Dutch tulip bubble, or any other speculative bubble.

tc10• 17 years ago

... but it did prevent the speculative losses from being socialized while keeping gains private. Only people who bought tulips lost money.

It's also widely thought today that the tulip mania was brought on in part by a parliamentary decree that weakened contractual protections on tulip contracts -- making it easy to speculate on inflated tulip prices without a correspondingly strong fear of loss.

There is also a strong case to be made that, similar to the current situation, the tulip mania was prompted or sustained by a sudden increase in the monetary base. Apparently the balance sheet of the Bank of Amsterdam was surging during this period.

redcap2• 17 years ago

Out of interest, do you have a link or source for your last comment regarding the Bank of Amsterdam?

timwiseman• 17 years ago

This article is remarkably well balanced and correctly points out that both those who previously blindly followed economicists and those who blindly ignore them now are wrong. The truth of course is in between.

Economics is both a comparitively young science (at least in terms of when it was formalized) and one that deals with (or is influenced by) a very unpedictable factor, human actions. It gets many things right, and some things wrong. With time, it will be refined though by its nature it is likely to never reach the rigour and predictive power of some of the hard sciences such as physics.

This current upset is rightly forcing a reevaluation of many beliefs, but when the dust finally settles in the future, economics will emerge stronger and more accurate than before.

mhartl• 17 years ago

Let's check the index:

  What went wrong with economics. See Keynes, John Maynard

lyudmil• 17 years ago

I am a little baffled by the article's thesis. There is very little evidence to support a "failure" of economics in the case of this current crisis. Several economists (mainly Dean Baker) were able to see the housing bubble and to accurately predict that its burst would lead to a recession.

I suspect the real failure being discussed in the article is the belief many at the Fed (especially Greenspan) had in self-regulating markets. Good arguments have been made that the lack of regulation was a major factor in creating the bubble-prone economy the US has had for 15 years (or more). So yes, in that respect, the "economic models" have failed.

In reality, most of this was completely predictable and avoidable. I would again point people to Dean Baker as a great resource in understanding the crisis: http://www.youtube.com/watch?v=CrSrL0lBorE

known• 17 years ago

http://en.wikipedia.org/wiki/Information_asymmetry has played its role in economic depression.

chinfuilan• 17 years ago

I got hold of the article rather accidentally and was attracted by it. Somehow, it was then put aside due to some preoccupation but it keeps returning and flashing to me like owl’s-carrying-letters sent in to Harry Potter, demanding my involvement to perhaps save the world. Yes, the world is in big trouble and economists can’t help due to perhaps lack of genes and consequentially severe loss of sights.

“What went wrong with economics” is: Economics lacks at least one fundamental foundation. Installing this fundamental will elevate Economics to another platform.

What is this fundamental? It is something that sciences cling on tightly, but economics does not. So, economics has departed from this fundamental, perhaps unconsciously.

What is it then? It is the Fundamental Axiom or Law of Causality, simply means: Cause gives rise to Effect, In = Out, Debit = Credit, a Source for every Outcome, etc which are common senses or self-evident truths.

Tell us in what way the Economics runs away from this fundamental? If you ask: You win, I win, everyone wins, who then is the loser or provider of wealth? Most of economists will tell you that there is no loser. The Economics textbooks also say so. But it cannot be no loser, as it violates the fundamental Law of Causality. So, we must insist for the presence of loser, as dictated by the Fundamental Law of Causality.

On this insistence, one great researcher by the name of HNM had successfully uncovered the identity of the loser and the mask of wealth after an effort of several decades. Needless to say, he has restored the Fundamental Law of Causality back to the economics and make it a strong and real science. Using his new theory, all events in the past or present could be explained with ease, and that it could predict and even provide future policies and directions for our world.

If you are really interested to find out more, please write to me via my email: chinfuilan@yahoo.com

What went wrong with economics

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