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Why So Little Self-Recrimination Among Economists?

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Why is it that economics is a Teflon discipline, seemingly unable to admit or recognize its errors?

Economic policies in the US and most advanced economies are to a significant degree devised by economists. They also serve as policy advocates, and are regularly quoted in the business and political media and contribute regularly to op-ed pages.

We have just witnessed them make a massive failure in diagnosis. Despite the fact that there was rampant evidence of trouble on various fronts – a housing bubble in many countries (the Economist had a major story on it in June 2005 and as readers well know, prices rose at an accelerating pace), rising levels of consumer debt, stagnant average worker wages, lack of corporate investment, a gaping US trade deficit, insanely low spreads for risky credits – the authorities took the “everything is for the best in this best of all possible worlds” posture until the wheels started coming off. And even when they did, the vast majority were constitutionally unable to call its trajectory.

Now of course, a lonely few did sound alarms. Nouriel Roubini and Robert Shiller both saw the danger of the housing/asset bubble; Jim Hamilton at the 2007 Jackson Hole conference said that the markets would test the implicit government guarantee of Fannie and Freddie; Henry Kaufman warned how consumer and companies were confusing access to credit (which could be cut off) with liquidity, and about how technology would amplify a financial crisis. Other names no doubt belong on this list, but the bigger point is that these warnings were often ignored.

Shiller has offered a not-very-convincing defense, claiming that economists were subject to “groupthink” and no one wanted to stick his neck out. That seems peculiar given that many prominent policy influencers are tenured. They would seem to have greater freedom than people in any other field to speak their mind. And one would imagine that being early to identify new developments or structural shifts would enhance one’s professional standing.

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.

Perhaps the conundrum results from the very fact that they are too close to the seat of power. Messengers that bear unpleasant news are generally not well received. And a government that wanted to engage in wishful, risky policies would want a document trail that said these moves were reasonable. “Whocouldanode” becomes a defense.

But how economists may be compromised by their policy role is way beyond the scope of a post. To return to the matter at hand: there appears to be an extraordinary lack of introspection within the discipline despite having presided over a Katrina-like failure. Jeff Madrik tells us:

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.

There were no sessions about why the profession was not up in arms about the deregulation of so sensitive a sector as finance. They are quick to oppose anything that undermines free trade, by contrast, and have had substantial influence doing just that.
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.

Madrik goes on in the balance of his piece to offer a list of things economists got wrong. Unfortunately, it’s off the mark in that he contends that economists (in effect) had unified beliefs on a lot of fronts. It’s a bit more accurate to say that there was a policy consensus, and anyone who deviated from the major elements had a bloody hard time getting a hearing (Dean Baker regularly points out that the New York Times and Washington Post still keep quoting economists who got the crisis wrong). The particulars on his list need some work too, but at least it’s a start (reader comments and improvements on it would be very much appreciated).

But Madrik does seem spot on about the lack of needed navel-gazing. I looked at the AEA schedule and did not see anything that questioned existing paradigms. And one paper that did was released recently, “The Crisis of 2008: Structural Lessons for and from Economics,” fell so far short of asking tough questions that it proves Madrik’s point. The analysis is shallow and profession serving. And that is not to say the author, Daron Acemoglu, is writing in bad faith, but to indicate how deeply inculcated economists are.

For instance, one of the three (only three?) ways in which he says economists took too much comfort in the Great Moderation;

The seeds of the crisis were sown in the Great Moderation… Everyone who patted themselves or others on the back during that time was really missing the point… The same interconnections that reduced the effects of small shocks created vulnerability to massive system-wide domino effects. No one saw this clearly.

Huh? The problems with the Great Moderation were far more deeply rooted than this depiction suggests. Acemoglu’s take is that the economy became more susceptible to shocks (that is, absent the bad luck of a shock, things could have continued merrily along). Thomas Palley argues, persuasively, that it was destined to come a cropper:

The raised standing of central bankers rests on a phenomenon that economists have termed the “Great Moderation.” This phenomenon refers to the smoothing of the business cycle over the last two decades, during which expansions have become longer, recessions shorter, and inflation has fallen.

Many economists attribute this smoothing to improved monetary policy by central banks, and hence the boom in central banker reputations. This explanation is popular with economists since it implicitly applauds the economics profession by attributing improved policy to advances in economics and increased influence of economists within central banks. For instance, the Fed’s Chairman is a former academic economist, as are many of the Fed’s board of governors and many Presidents of the regional Federal Reserve banks.

That said, there are other less celebratory accounts of the Great Moderation that view it as a transitional phenomenon, and one that has also come at a high cost. One reason for the changed business cycle is retreat from policy commitment to full employment. The great Polish economist Michal Kalecki observed that full employment would likely cause inflation because job security would prompt workers to demand higher wages. That is what happened in the 1960s and 1970s. However, rather than solving this political problem, economic policy retreated from full employment and assisted in the evisceration of unions. That lowered inflation, but it came at the high cost of two decades of wage stagnation and a rupturing of the link between wage and productivity growth.

Disinflation also lowered interest rates, particularly during downturns. This contributed to successive waves of mortgage refinancing and also reduced cash outflows on new mortgages. That improved household finances and supported consumer spending, thereby keeping recessions short and shallow.

With regard to lengthened economic expansions, the great moderation has been driven by asset price inflation and financial innovation, which have financed consumer spending. Higher asset prices have provided collateral to borrow against, while financial innovation has increased the volume and ease of access to credit. Together, that created a dynamic in which rising asset prices have supported increased debt-financed spending, thereby making for longer expansions. This dynamic is exemplified by the housing bubble of the last eight years.

The important implication is that the Great Moderation is the result of a retreat from full employment combined with the transitional factors of disinflation, asset price inflation, and increased consumer borrowing. Those factors now appear exhausted. Further disinflation will produce disruptive deflation.

Palley wrote this in April 2008, although he had touched on some of these issues earlier. Did this view reach a wide audience? No. Understanding why might help us understand better why the economics profession went astray.

Acemoglu’s paper had a couple of other eye-popping items: Even though he gives lip service to the idea that the economics was unduly infused with ideas from Ayn Rand, he then backtracks:

On the contrary, the recognition that markets live on foundations laid by institutions— that free markets are not the same as unregulated markets— enriches both theory and its practice.

“Free markets” is Newspeak, and the sooner we collectively start to object to the use of that phrase, the better. Because it is imprecise and undefined, advocates can use it to mean different things in different contexts. I cannot take any economist seriously who uses “free markets” in anything more rigorous than a newspaper column (and even there it would annoy me). It has NO place in an academic paper (save perhaps on the evolution of the concept).

We also have this:

A deep and important contribution of the discipline of economics is the insight that greed is neither good nor bad in the abstract.

This reveals that Acemoglu has been corrupted by Rand more than he seems willing to recognize. No one would have dared write anything like that even as recently as ten years ago. Let us consider the definition of greed, from Merriam Webster:

a selfish and excessive desire for more of something (as money) than is needed

Greed is different than, say, ambition. “Greed is good” was famously attributed to criminal Ivan Boesky, and later film felon Gordon Gekko.

Put more bluntly, greed is the id without restraint. Psychiatrists, social workers, policemen, and parents all know that unchecked, conscienceless desire is not a good thing. Acemoglu calls for external checks (‘the right incentive and reward structures”), when the record of the last 20 years is that a neutral to positive view of greed allows for ambitious actors to increasingly bend the rules and amass power. The benefits are concentrated, and the costs often sufficiently diffuse as to provide for insufficient incentives (or even means) for checking such behavior. Like it or not, there is a role for social values, as nineteenth century that may sound. The costs of providing a sufficiently elaborate superstructure of rules and restrictions is far more costly than having a solid baseline of social norms. But our collective standards have fallen so far I am not sure we can reach a better equilibrium there.

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110 comments

  1. JB

    Hi Yves. I visited a friend the other day and in their spare bedroom they’d stacked up an old pile of The Economist magazines. During a quiet moment, I picked up a couple of magazines. Some things don’t change, the French were striking and the Gaza strip and Israel seemed devoid of leadership. It was odd to look back at the Technology sections even things from 2001 looked so dated.

    But I also came across an “Economics Focus” article on the housing market in the US by a couple of well known economists from Harvard. House prices were rising fast but they declared there was “no bubble” because of “free markets”. They stated that since the housing markets were liquid and that all participants had access to plenty of information, there could be no bubble, the prices were perfect.

    Just reading the article alarmed me. It was like discovering a stone tablet on astronomy where an ancient race believed the sun rotated around the earth. But this “Economics Focus”, mainstream thought brought to you by The Economist was only a few years old yet it was totally wrong!

    This wasn’t greed, we really had top brains at Harvard unable to spot a bubble and perhaps blinded by a bit of ideology?

  2. ndk

    Why is it that economics is a Teflon discipline, seemingly unable to admit or recognize its errors?

    As an outsider, I perceived modern economics the same way I perceived modern meteorology. They both study extremely complicated, chaotic systems that consist entirely of unrepeatable experiments and limited to no control over the inputs. They both model reality with increasingly complex systems that are matched against empirical results.

    But as I got into it, the very strange thing is that some primary economic theories are only weakly supported by empirical data, or not at all. That baffles me. Could that be the effects of groupthink, or politics? It’s a much stronger effect than I’ve seen in any other discipline. Usually there’s a more concerted attempt at reconciliation of data with theory.

    Anyway, I think of most professional economists the same way I think of most TV weather forecasters. They’re just a smiling, pretty face, and if their forecast as generated by those simple models happens to be wrong, their job is never at risk.

    The academics are different. They simply repeat what they’ve learned, seeking not to upset the boat, because frankly an academic striking out with novel theories does so at great peril to their career. The salaries for professors are quite good, but probably nothing compared to what is on offer at think tanks and private firms. That leads to our old saying, which I deplore for its grains of truth in some cases:

    “Those who can, do. Those who can’t, teach.”

    You won’t get the best talent at most universities, where they could do the most good, until it’s an appealing career choice both socially and financially. I’ve worked in academia most of my life, though with consulting work outside of it, and that above phrase seems to capture common perception pretty well. It brings in neither women nor money: you have to do it for the love of school, teaching, and the ideas themselves.

  3. IF

    Yves: Having come to the US about nearly 10 years ago, I am shocked to read your claim (repeatedly) that things were different 10 or 20 years ago. I can't judge it. I wasn't around. I thought society and values have always been the way they are now.

    When I think about it, the few older people (>50 years) I know are often more down to earth, and may I say, more reasonable (to me). More appreciative and humble. It is in my and the younger generation that I found (before the crisis) a faith in the continuity of the good times that just appeared surreal to me. It still shakes me that some kids (smart kids, top 10 school, non rich parents) purchased a house – or even just a fancy car – on credit first thing they came out of college.

    Maybe they are just like me? Having no history to measure against. Not knowing what was before.

  4. Anonymous

    Yves said,

    “our collective standards have fallen so far I am not sure we can reach a better equilibrium there. “

    Thank you for striking the nail square on the head. No one will face up to this, because they can’t. That’s why the ship will sink.

  5. Anonymous

    ndk said,

    “I think of most professional economists the same way I think of most TV weather forecasters. They’re just a smiling, pretty face”

    That’s funny! When I see pictures of “learned” economists, I see (mostly) aged fat men. Not too many “pretty faces” in this crowd ;-)

  6. Yves Smith

    IF,

    In the movie Wall Street, "Greed is Good" Gordon Gekko is clearly a bad guy (although charismatic in a creepy sort of way) and goes to jail. A straight up morality tale. That was released in 1987.

    There was a also a good deal of reflection on the bad behavior of the late 1980s in the wake of the S&K crisis (early 1990s) Didn't last long.

    Although the "every man for himself" ethos has largely been on an upward trajectory since the mid 1980s (with that early 1990s blip), it really took off in the mid 1990s. That was in part fueled by options-based pay for CEOs, which sent their comp into the stratosphere (and created an industry of sycophants to justify it) and more and more Wall Street firms going public (which led the leadership group to put their pay over prudent management of capital, when the latter had been their top concern when they were private). And the insane amounts of money made (and in most cases lost) in the dot com era fed into this pattern.

    The comment was directed at an academic defending the concept of greed in a paper, as opposed to a popular medium. Those tend to lag shifts in the general culture.

  7. donebenson

    There is a wonderful quote from Keynes on bankers:

    “It is for this reason that a decline in money values threatens the solidity of the whole financial structure. Banks and bankers are by nature blind. They have not seen what was coming….A “sound” banker, alas! is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him.”

    I think that comment could easily apply to economists as well.

    From my over 35 years of experience on the ‘buy side,’ there is a tremendous amount of pressure on Wall St. economists and analysts to be positive, since most investors are optimistic, and only wish to hear good news. What makes tenured academic economist to be the same escapes me.

    In contemporary economics [with few exceptions] there seems to be an ignoring of history and a strong emphasis on mathematics. For me, economics can never be reduced to a set of equations, no matter how hard economists try.

  8. mmckinl

    Economists and Financial Writers Newest and Biggest Failure …Our Banking System is Insolvent yet Mum’s the Word!

    The fact is that almost All Wall Street Banks are insolvent, broke, bust ! ~~~ As most economists and writers missed the housing bubble, now almost all are missing the gaping hole in our solvency and indeed in the trust necessary for the proper operation of financial marklets. This can only be restored with tough transparent audits.

    FDR did it successfully, as did Sweden and Norway. What is it ? Bank Balance Sheet scrubbing that restored trust and solvency to the system. It is called the Swedish Plan or a Bank Holiday

    As it stands now we can’t even get any answers on the $9 Trillions in Tax Payer Money that has been loaned or used as underwriting for our financial system.

    William Greider wrote in The Nation over 6 weeks ago about this whole situation. Well it has only gotten geometrically worse. At that time , we, the tax payers were only on the hook for a couple of trilllion dollars. Now just weeks later , we, the tax payer are on the hook for over $9 trillions and counting.

    Time for a Bank Holiday by William Greider @ The Nation

    Here is what Greider wrote 6 weeks ago :

    “From the outset of the crisis, the essential fallacy shared by governing influentials has been a wishful assumption that quick interventions with tons of public money would somehow restore the system to “normal” without disturbing free-market principles. Replenished banks would start lending again and lead us to recovery. “Normal” is not going to happen. If the new president does not break free of the denial and act decisively, his administration will be dangerously compromised from the start.
    Obama can begin by declaring a “bank holiday” like FDR’s in 1933–an opportunity to put the hard facts on the table and assume temporary control of the entire financial system. Nationalizing the banks sounds more radical than it is, since banking law already empowers regulators to impose extraordinary controls and close supervision over troubled institutions. Facing facts will be painful, but it’s better than continuing a costly charade.”

    And yet, here we are, six weeks later, with a deafening, damning silence including the economists and financial reporters from the left.

  9. bg

    If you ever spent any time trying to make a point on a discussion board for investors you quickly learn that there are exactly two sides to every trade and everyone has a dog in the race. The arguments quickly degenerate, and if someone actually presents a bit of tangible data, they are personally attacked.

    Although extreme, I do not think that this is entrirely different than all debate in our ancient social structures. Yes there are a few places where safe dialog can occur (look at this blog, for example). But as soon as someone has power or a stake all bets are off.

    What is at stake for economists? what power do they have? I like the old statement about college faculty politics: They fight because there is so little at stake. Buiter and Roubini may be our heros, but I am sure they would be barely tolerated if only slightly more wrong.

    Do a little mind experiment. Give yourself their responsibilities and burdens. What would you have done?

    Creative destruction exists for a reason.

  10. Anonymous

    I must say…this is one of the best blog posts i have ever read, from any sort of blog ever.

    Thank you for writing it.

  11. Anonymous

    Suggestion for journalists:

    Try to get the court records for the Savings and Loan debacle opened up. Most of them are kept secret. Look up the big names.

    Look into the deals made that the courts kept secret, look into how the big ones who got rich bankrupting S&Ls were able to walk away with lots of money and go on to bankrupting other businesses to their own ongoing profit and that of their bankers.

  12. Jojo

    “Why So Little Self-Recrimination Among Economists?”

    The answer is simple. Why should there be?

    People forget that almost all economists are employed by corporations and nearly all corporations want a positive market.

    The real reason economists exist in the real world is to massage the statistics in a positive matter so as to help their companies make money.

    In most recent history, their job was to proclaim that there were no bubbles and that yes, stocks, houses, everything could really keep going up forever. Refer to Yves past post titled “Bullshit Promises”.

  13. Timo

    By reading economic articles for one year any guy would eventually realize most of the economists are just full of shit. Now those idiots (mainly Anglo economists) wanna quick "just throw money at it and it will go away"-solution.

    No deep analysis, no challenging the "groupthink", nothing, nada, zip. Luckily those monkeys DO not build bridges or planes, they just fuck up the economy! Only few "outsider" economists tell the real story but they are considered "weirdos" or "doom&gloomers" etc.

    With their free market (except the other guy did keep the trade barriers) naive ideology they are destroying both UK and US economies.

    For every greedy rich guy one economists but also be hanged. At least it doubles the demand of lamp posts…

  14. Irene

    ndk says and I could not agree more:

    “The academics are different. They simply repeat what they’ve learned, seeking not to upset the boat, because frankly an academic striking out with novel theories does so at great peril to their career.”

    Economics is a fradulent discipline and academic economists are fully aware of it. Economic models never embed a realistic description of the monetary system. Actually, even in the standard models used by central bankers, money is irrelevant. As are all decisions to create or allocate money. The current crisis is beyond the Economists’ realm because it originated at the monetary level which they ignore on purpose. So they feel self-entitled not to care. They keep playing the part that was assigned to them. If they didn’t, no tenure protection in any University would possibly hold.

  15. Timo

    typo: must be also hanged :)

    Probably economics combined with psychology (“rational consumer my ass” :) would give better results but it would also be much more complicated.

  16. Anonymous

    The problem is that there are two competing paradigms on the core problem of the economy. One focuses on the lack of government oversight and regulation. The other focuses on the existence of a central bank and fiat currency. IMHO the latter is more formidable. The former, without considerable qualification, implies a superior insight into economic realities on the part of government bureaucrats. Both more regulation and existence and utility of central banks are part of the “progressive” consensus which, still suffering from the influence of Marxist superstitions believe that the business cycle refutes capitalism and that therefore it simply must, must be possible to design an economic system that transcends this cycle. It is the philosophy of the triumphant sovereign will.

  17. Anonymous

    “They are quick to oppose anything that undermines free trade, by contrast, and have had substantial influence doing just that.”

    There is the answer. A world economy so warped by disasterous trade policy destroys itself trying to mitigate the destruction. Same with monetarism.

  18. Anonymous

    “our collective standards have fallen so far I am not sure we can reach a better equilibrium there. “

    Here’s a good Economic Theory, now being proven in practice and demonstrated daily all around us:

    “Looting is restrained on the Way Up, it ACCELERATES on the Way Down.” Fat Tony would understand this in a flash.

  19. mrmetrowest

    My view is that economics is a science which attempts to use mathematics to derive models of economic behavior that can be used to predict and prescribe.

    Self examination by economists would lead to an existential crisis. Economists make a fundamental mistake: applying the techniques of physical science to human behavior. Physical laws are immutable, human behavior is not. No mathematical model will ever predict, with certainty, human actions by individual or group. There are too many variables, and nothing that can be taken as axiomatic, most particularly that people will behave rationally. And how can irrational behavior be modeled?

    The discussion economists most need to have is whether economics would be best server by becoming a branch of theology, or whether astrology would allow them to retain a better claim for being a science.

  20. titi

    Yves,

    I think one of the reasons is that most economics live anyhow in a permanent state of denial. So-called Nobel prizes (there is no Nobel for economy to start with) have been handed out to economists that proved that markets can’t function on their own, that a move from imperfect to perfect market makes you worse off, that there is no such thing as well-informed consumers, etc etc. You cited Willem Buiter the other day: “Economic policy is based on a collection of half-truths. The nature of these half-truths changes occasionally. Economics as a scholarly discipline consists in the periodic rediscovery and refinement of old half-truths”.

    Economists know all these half-truths, but because they don’t have anything better to propose, they continue to pretend the untruths to be true. Why they do so, is perhaps more Freudian than I can muster.

  21. eco

    Makes one wonder about the “settled science” of human caused climate change – of course that’s different, we have the evidence.

  22. Maineiac

    I think the real question is how do we select economist to advise us. The answer is that they are selected by organizations which are corporate controlled. Financial institutions of course, but also the media and academia. You don’t bite the hand that feeds you.

  23. datadave

    Jeesum, Yves. Not much to add to your criticism of the economics profession. I come from a Poli-Sci background where ideology is also very much all important in whether one gets a ‘job’ or not after getting a degree.

    I consider Economics as being politicized. There are ‘left-wing’ economists but they are less likely to be hired no matter their grades, mental heft or writing ability. Also, the over-use of statistics and math also conceals a lot. Returning to a Political Economy model of education like the Brits had might be a more honest way to educate economists.

  24. Anonymous

    Yves,
    I think you drew a bad analogy between economists and doctors/malpractice suits.

    Economists have done the diagnoses properly – NBER declared us to be in a recession. Check. What you are asking for is a prediction which is not the same thing as a diagnosis of an event that has occurred. How many doctors do you know who can accurately predict cancer 5 years before a patient actually gets it? And if you want a profession that does not self-examine, look no further than the medical profession. Got family members in the field and the amount of carelessly among many doctors is appalling. People die simply because of simple sloppiness and most perpetrators can give a flying fvck (so long as there is no malpractice suit forthcoming).

  25. DownSouth

    mrmetrowest said…
    “My view is that economics is a science which attempts to use mathematics to derive models of economic behavior that can be used to predict and prescribe.”

    My view is that economics is a pseudoscience which attempts to use phony mathematics to derive models of economic behavior that can be used to exploit human nature and manipulate human behavior.

  26. phil_hubb

    Perhaps these economists were in error because one or more of the fundamental axioms of their dismal science are in error.
    Perhaps it is not the errors of these economists that we should be scrutinizing but errors at the very heart of economic theory.

    And while we’re at it, why can’t NOAA predict the weather? And where’s that cure for the common cold? And why, with legions of social scientists on the payroll, is society sicker than ever?
    Maybe western civilization is just full of crap at a very fundamental level.

  27. Woland

    Your post on the failure of economists reminds me of
    the “scandal” of the autism facilitators, who by holding
    the hand of an autistic person, with a pencil, were able
    to write out thoughts of said person. These facilitators
    were convinced that they were indeed conveying the
    thoughts of their “clients” , which made them heroes to
    the parents of the afflicted children. Everybody was happy, until the tests were done which disproved that
    anything other than projection was taking place.

  28. Anonymous

    @ Jojo et alia,

    Yes they want to spout their Bullshit… and eat it. :)

    And maybe there such a thing as “Other Peoples’ Economy”?

  29. Anonymous

    Phil hubb, exactly!
    There is corruption at every level and singly out one profession is ridiculous. Our entire society whether it is finance, economics, medicine, our food system is rotten to the core.

  30. Stuart

    Institutions and Professions have never governed themselves well or allowed themselves to be subject to outside rebuke without getting extremely defensive. No different than the average person. Critique them, their first reaction is to defend their actions irrespective of considerations of fault. They just don’t like it.

  31. eco

    Looks like one economist is going against the grain and suggesting that things are starting to turn for the better.

    Signs of a Thaw

    James D. Hamilton is Professor of Economics at the University of California, San Diego

  32. River

    Yves, great post, thank you.

    What can an economist hope for in their career? To earn tenure at a ‘good’ school, be recognized by publishing esoteric thoughts on already accepted economic theory? If their papers are recognized as supporting already accepted theory then the economist might possibly be invited into a government post. From the gov post it is possible to make the next step to big business and big money, possible speaking engagements, invitatiions to meetings in exotic locations, if all goes well and the boat is not rocked. Note that nothing that the economist does while in academia or the government is going to cost investors money directly because said economist is not acting as an ‘investment advisor’ in a business setting.

    If the academic economist eventually reaches a high paying Wall St job they will be totally unprepared. Their experience is in classrooms, theory and economic history where on Wall St they are faced with learning to be a hustler, and liar, Wall St style. The one asset that the academic economist carries from school to Wall St is the knowledge that it is unwise to step out of the mainstream. There lies danger to career advancement opportunity. Above all, keep one’s real thoughts to one’s self.

    The few contrarians that are willing to speak out against the mainstream are probably in possession of conscience to a greater degree than most. Alternatively or in conjunction with conscience these contrarians might have a better grasp of real vs bs economics because they might be more intelligent and apply themselves with more vigor. The contrarian in any field often finds that intelligence, conscience and an urge to speak out and inform is a terrible burden to bear. Remember, the economists are already under the strain of knowing that their field of endeavor is suspect to real scientists and much of the public.

    Suppose an economist cries ‘wolf’ and then stands with contemporaries while the wolf comes, grabs a sheep, and runs away and then the crowd watches only to see everyday activity return to ‘normal’. The economist that cried wolf will probably be shunned because no six sigma event took place, no huge pack of wolves arrived to take away the entire flock of sheep. The people and sheep returned to ‘normal’ activity.

    What would be the future career prospects for such an economist that cried wolf?

  33. reason

    I think this post deserves a better comment thread. But yes something is rotten in the heart of the profession. But my guess is that it was always so.

    Money is so corrupting that it is really hard to avoid letting passions get in the way.

    As I see it the problem is that there is no model of the real economy that properly integrates the financial realm.

    I see on the right lots of people who seem to not get the idea that current problems have something to do with bankrupcy (they seem to think prices are out of line or something). On the left, lots of people who don’t recognise that the solution to too much debt is not more debt.

    I’m reading Steve Keen and Herman Daly at the moment, and while some of their ideas are good, it still seems to me that there is something missing.

    Yves, what direction do you think things will take now. After all Keynes emerged from the last mess, even if some of his important were ignored.

  34. reason

    As for Wall Street economists, don’t forget that Steve Roach and Andy Xie from Morgan Stanley were consistently on the bear side.

  35. joebhed

    Yves,
    Thanks for laying out another part of the discussion that is missing, more like: "what the F do economists REALLY know, especially when it comes to money?".
    May I point out to readers that finally a progressive pol in Dennis Kucinich is tackling the financial and economic crisis head on with a call for substantive monetary reform.
    Here is his speech last week on the House floor in discussing the crisis and the Stimulus.

    http://www.youtube.com/watch?v=AR2EtMteHCg&feature=channel_page00

    What we DO need is a new debt-free money system.
    We do not need Basel II and we do not need globs of Keynesian thinking – so passe for this time.
    Thanks.

  36. dearieme

    We wanted to let our house in a College Town. The advice we received was that we shouldn’t let to students or teachers of (i Economics, (ii) Law, (iii) Business Administration.

    There may be a clue there.

  37. Anonymous

    Anonymous at 8:27,

    Yves’ analogy with doctors certainly holds: it is not the cancer that doctors are required to predict, but rather death, having first observed the cancer. When the financial sphere suddenly died, economists should be open to criticism for having failed to diagnose the financial cancer.

    My hope is that people will actually begin to expand on this analogy in time, eventually equating modern economists with physicians circa 1850, when science was competently practiced but the first principles upon which the science was practiced were largely hogwash.

  38. Anonymous

    “Why is it that economics is a Teflon discipline, seemingly unable to admit or recognize its errors?

    Simple. It’s not a discipline. It’s an apology.

  39. wintermute

    Yves.

    Trade Credit Insurance.

    Another example of how government has distorted capitalism until it does not work properly. As we know, small recessions are necessary to clear out weak and failing companies. Hence insurance writers should have to pay out on trade credit insurance periodically.

    However, in a multi-decade debt financed boom where government abolishes recessions – not enough companies fail. This means that insurance becomes mis-priced. During a severe recession premiums are raised or not even written to over-compensate for this previous structural failing.
    It is dangerously pro-cyclical.

    Robert Peston has a good summary of this problem in the UK which must apply in the US too.

    http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/01/insurance_that_worsens_crunch.html

  40. Anonymous

    There is little self recrimination of economists because they – like everything else in scamerica – have been co-opted by elite neocon control freaks. It was, and still is, easy to co-opt them (and all other disciplines/societal groups) because scamerica functions under ‘crumbunism’ — obey and promote the gangster line and you get your daily crumbs — rather than the abstract decoy, bullshit construct, ‘free market’ capitalism that they constantly tout as the ideal.

    I would take the beginning of this well orchestrated global coup – more pernicious than plain old vanilla gangsterism – back to Reagan and the PATCO strike. The publicly avowed goal of the elite neocons behind the curtains is to forge an elite two tier ruler and ruled world with the ruled in a state of perpetual conflict with each other. A global population limit of eight billion is a key part of their plan, and yes, domestic populations are fair game.

    In addition to crumbunism, compartmentalization of knowledge facilitates their evil scheme. People tend to stay in their little boxes of ‘expert’ knowledge and therefore limit themselves. What is needed is to break down the walls of all disciplines and connect the dots.

    All of life is political.

    Deception is the strongest political force on the planet.

    i on the ball patriot.

  41. Jesse

    It’s difficult to assess the outcomes and quality of a game if one does not understand the rules, but even moreso if one does not understand the objective.

    The objective of recent economics, at least in the short to intermediate term, is not truth, but power, measured in money, grants, and influence, with a heavy element of factionalism.

    It is a social science, with murky experimental methods and difficult to measure theories with ‘grading periods’ too widely interspersed to be meaningful.

    Tenue is a weak consolation to the ambitious person. It can be at worst a kind of exile.

    But is economics so much the problem? What about now? Where is the outrage, where is the objective analysis of what went wrong?

    In a few blogs, and even there, it can be a measure of money and power and influence at times.

    So let us not blame economics so much for not being virtuous, because there were too few both then and now, if one defines a ‘virtuous’ as one who tells the truth, come what may as the facts and their analysis leads them.

    Our society does not value the truth, it worship money and power. That is both the long and short of it.

    Things will change, and probably for the better. I have some optimism for economics, which like psychology in the Soviet period and medicine in the Nazi period, became sciences subject to what some might call ‘deep capture.’

  42. Dave Raithel

    I sometimes wind up over at Tyler Cowan’s place; and in fact, I’d thought the link to his post on Economists’ Errors had come from Yves sometime earlier this month:

    http://www.marginalrevolution.com/marginalrevolution/2009/01/famous-economis.html

    But I am not sure that it did, and I cite it here as supplement to ndk’s very good illustrative analogy.

    Most everyone has their favorite way of denouncing what economists do, but this is mine: Economics is ideology obscured by numbers. Of course, THAT way reflects something of Marxist “superstitions” – From each the disenchantment with reality as he finds it, to each the doctrine that makes most sense of one’s experiences. Yeah yeah the whole transformation of labor value to prices, and the decling rate of profit problem … but now go review the list of bourgeois economists errors over at Cowan’s place ….

  43. Anonymous

    @Anon@9:56

    [quote]“Yves’ analogy with doctors certainly holds: it is not the cancer that doctors are required to predict, but rather death, having first observed the cancer. When the financial sphere suddenly died, economists should be open to criticism for having failed to diagnose the financial cancer.”[/quote]

    Yves analogy still does not hold under your scenario. The key here is the difference between diagnosis and prediction. All you did was change the event to be predicted. Fine, if we go from predicting the onset of cancer to predicting life expectancy after diagnoses, we are still making a *prediction* rather than a diagnoses. And doctors are notoriously inaccurate at predicting life expectancy after first observing cancer.

    And btw, you don’t have to go back to 1850 to look for cracks in the medical complex. Modern medicine may rely on modern scientific principles, but the principles are often misapplied. Doing controlled studies by assuming that we can isolate treatment effects to specific parts of the body or symptom has directly contributed to the emergence of big pharma. Americans are now more focused on popping pills and living with side effects rather than engaging in true healing. And the few doctors that do look at the body as a system rather than separate parts that can be isolated from each other are branded as quacks by the mainstream for practicing “holistic medicine.” Being a contrarian is tough no matter what field you’re in.

  44. Anonymous

    Here is our problem:
    JMK famously said:
    The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.
    AND ALSO:
    If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.

    And for fans of economic history, this from James’ Galbraith’s 2002 review of *Perilous Progress*
    Bernstein, a trained economist and professor in history at the University of California at San Diego, details a largely unknown and even unsuspected history of how our [economist's] professional associations and journals strove from the beginning to engage the important questions, and of how they in the end lost the ability to do so.
    [snip]
    And so we end where we started. Of the American Economic Association meetings in 1915, the President of the New York Federal Reserve Bank (no less) wrote that the participants were a “`rather impractical lot. Here is a world crisis, the greatest in a half a thousand years, or more,’ and economists did not even deign to discuss it.” No present day observer would be surprised.

  45. But What do I Know?

    Thanks for calling the economists out over their lack of mea culpas, but the real point is that even if they issued them nothing would change, they would still be quoted and tenured and cosseted in the sweet stagnant attic of academia. These “wise men” are configured as experts because the system needs someone to reference–even if an academic admits that he knows little or nothing, his admission will be taken as wisdom–”look how wise he is to admit that he knows little or nothing.”

    As for greed, in all societies it is necessary for those on top to not be greedy–or at least short-term greedy. They have always had the potential to do so, but when the elites refrain from exploiting their advantages to the fullest, then society can thrive.

  46. Just another social scientist

    This is an argument which, unfortunately, seems to have already been beaten to death – largely because the people it’s directed at simply have no desire to even acknowledge its legitimacy.

    Why?

    Economics as a discipline is based on a simple paradox:

    1) Prediction is superior to realistic assumptions. This is Friedman’s explicit view of science and in turn Economics as a scientific discipline.

    2) Social phenomena are not ergodic like natural phenomena.

    The reason physics, chemistry and biology can follow Friedman’s approach is because the fundamental assumptions which underlie physical laws do not change. Understanding of these phenomena can thus be considered synonymous with prediction – the underlying mechanisms and assumptions are irrelevant to the patterned outcomes, so long as these foundations do not change. Economics as a discipline acts as if this is also the case for human behavior. Since this is the commonly accepted definition of the scientific method, they feel absolutely no need to defend their perspective in the face of failed models – eventually, as in other fields, they will asymptotically approach reality.

    I’m sure most people who deal with the real economy recognize that this is utterly ridiculous. We have not returned to the same economic equilibrium we had 200, 100, even 50 years ago, but this facade of scientific credibility provides an inestimable amount of self-delusion and/or protection from real criticism.

    Personally, I feel pretty good about where I’m at in this disciplinary fight. Friedman’s approach to social science is pretty thoroughly over, as far as I can tell. Whether they know it or not, economists are now weak enough and other methods are strong enough that critics like Mandelbrot should gain some vindication in witnessing new and renewed interest in network analysis, complex systems and a great deal of other appropriately nuanced approaches. 50 years ago we just didn’t have the computing power to even big this project, and now we will probably get the chance to really start working on it.

  47. Anonymous

    Rumsfeldian logic stated there are the knowns, the known unknowns and the unknown unknowns.

    I read this blog to try and get a handle on the problems ( the knowns) where they are leading to ( the known unknowns) and where economic analysis reaches its limits ( the unknown unknowns). I wish economists could predict with some certainty the outcome of some known unknown ( say when a bubble will burst or when deflation will give way to inflation) but that is probably dependant on which unknown unknown happens to precipitate the predicted outcome.

    I think anyway.

  48. Anonymous

    Yves,

    To paraphrase Karl Popper, science is fallible because science is human, and humans are fallible. Many acknowledged great scientists, Einstein, for one,held similar opinion. Yet, we worship the “absolute external truth” that science proclaims. Humberto Maturana states that hard science does not speak to us, scientists do. Scientists, even when claiming empirical work, proceed from emotions, versus the claim of the rational, because scientists also validate similarly as we do. We validate based on what we find to be harmonious and pleasant to us.

    That is how we create our individual realities. Subscribing to an absolute external truth is to submit to the imperialism and tyranny of the claimant.

    Doble M

  49. Anonymous

    Anon@10:55,

    I’m going to keep at this because not only do I think Yves’ analogy is correct, I think it would do great good in the world if it were to gain traction.

    I believe you are being sophistic to suggest that because doctors can’t cure cancer reliably, we are still dealing with the problem of prediction. Clearly, many, MANY outcomes of health have been changed since doctors began to focus on accurate diagnoses, EVEN THOUGH they are obviously still attempting closed solutions to open systems, and EVEN THOUGH cancer is one of the most intractable diseases. I believe the same would be true of economics: Yes, there would still be intractable problems, but there would also be many cures. The economics profession desperately needs a re-examination of its assumptions, just as the medical profession once did, so that the methods of science and mathematics are not uselessly applied, as they clearly are now.

  50. GloomBoom

    One difference between economics and meteorology is that with economics you can’t look out the window and see if it is raining or not. One economist says there is a bubble and the next says all is fine.
    Today many economists are saying that we have hit the bottom and others that the worst is yet to come….

  51. Anonymous

    Yves,

    Thanks for the posting. Economists should be ashamed of themselves and their slice of the social sciences. If economists had any morals they would be out there pounding the table talking about imperialism. They would be be screaming about the lack of transperancy of the derivative market. They would also be shedding light on how fascism exists in America and its effects.

    But none of this is happening.

  52. lineup32

    “Jojo said…
    “Why So Little Self-Recrimination Among Economists?”

    The answer is simple. Why should there be?

    People forget that almost all economists are employed by corporations and nearly all corporations want a positive market.”

    Brilliant out of box thinking is the exception in all fields rather then the norm. Jojo’s comments reflect the reality of our economic life which is driven by the political,financial and media interest of the multi-national corpoation. Far more serious problems await our attention but the search for the guilty much like the witch hunts of the past provide the emotional expression currently coming to a boil.

  53. donna

    Within each school of economics there seems to be a standard line. In my mostly Keyensian economics class in college, I asked if we were going to talk about Austrian economics or different economic schools of thought, and when the teacher said, “no”, I turned off my brain for the rest of the semester.

    Most economists can’t seem to think outside of whatever basic version they learned, and seem a bit brain dead to other ideas, really. Sad. As an engineer, I find economics a pretty boring discipline. In engineering, if you don’t consider failure modes, you’re a very poor engineer.

  54. Anonymous

    @anon@12:12

    I still disagree with your take on Yves analogy and I suspect we aren’t understanding each other because my benchmark for success has nothing to do with curing cancer. My point about prediction vs diagnosis was pretty simple I thought, but I’m done arguing about the analogy.

    If your main point is that economists need to examine their assumptions, I wholeheartedly agree. I think this should be true of all individuals, scientists, organizations, professions, etc. I just found it highly suspicious that our benchmark for success would be doctors, who are some of the worst offenders at sloppy science and making unreasonable assumptions. It would be like saying Al Capone is corrupt because he doesn’t conduct his business like the Vito Corleone.

  55. Anonymous

    Yves,
    I want to thank you for your posting of Palley's thoughts. You (I think) have posted this more than once, and it richly deserves it. There is a select group of economists who saw our approaching storm. Of these Palley is the only one who understands the political underpinnings of our "free market" and in particular, the anti-worker, anti-labor base. You rarely seem him quoted, probably because he has consulted for unions. (What would the profession be like, if economists who consulted for the financial industry and MNCs were never quoted??)

    My belief is that the job losses will surprise to the upside. They will go on and on and on, until we learn the POLITICAL lesson, that we have allowed our economy to become dangerously unbalanced, towards finance & the MNCs, and away from American citizens. This may well be traumatic.

    Obviously you cannot have a consumer society when wages and benefits and job security are diminished for decades. It's been a War of Attrition, and the credit bubble allowed it to go on. Now the consumer is defeated.

    Economists have been building fantasy castles. Now reality has destroyed them. As the reality of this sinks in, there will be changes in the ideological lay of the land.

  56. doc holiday

    Re: "But how economists may be compromised by their policy role is way beyond the scope of a post .. "

    >> The point here is obvious and it is related to the outcome of stock picks from people like Faber, or random daily whining from shills on Wall Street, and tips from avon ladies, taxcab whores, your in-law, your butcher, your baker, your goat herder and your drug dealer, maybe even your Mom or Dad, maybe someone by a slot machine or near a lotto machine, maybe, just maybe, this whole matter is related to the greatest number crunching economist to ever walk upon the infinite paths of Earth:

    Raymond Babbitt

    Also See: Qantas never crashed

  57. Anonymous

    Another example of the overgrowth of the professional class and academia mucking up this society. All without facing real world consequences. Need to have skin in the game and consequences or only blowing smoke…

    Need to get the money away from hot air, papers, and worthless models that savvy people know do not meet the test of real world applications.

    Economists and other academic theorists should be restricted to shaking bones and reading …or tea leaves or …

  58. doc holiday

    I forgot to include the final point, that I was attempting to make in my last point, i.e, the point being, that while some people win others simply don’t.

    There is obviously no difference between the observations of autistic savants and Wall Street economic experts and the people paid to be shills that fabricate false and misleading bullsit. You can take that to the bank, because the proof is priced into the pudding!

  59. locust

    Man is not inherently honest. If he were, there would be little to no use for laws and regulations.

  60. RoadRunner

    My own view is that the econs you’re allowed to see/hear in MSM are generally cheering for the regime, or othewise trying to herd the populus in a certain market direction to suit the needs of the elite. That is, this is a political job, at least for the ones who make it. For all the econs out there, how many of them trade in the markets or otherwise make their fortune? Would you take fishing advice from a guy who never ventures past the jetty?

  61. Anonymous

    “that seems peculiar given that many prominent policy influencers are tenured.”

    Get rid of tenure. No school which accepts government grants should be permitted to hand out tenure.

    Topple the IVY tower.

    It is socialism for the rich, IVY league graduates.

  62. Independent Accountant

    I’ve read 64 comments and Jesse’s post at Cafe Americain. I largely agree with Jesse and suggest you read his post. My comments:
    YS:
    Yes, economists serve as policy advocates. Hence they shade their findings to support policy. I see this in other experts: CPAs, criminologists, sociologists, educationalists, etc. I would not necessarily trust anything an expert says and have posted on expert failings many times. A big problem economists have is measurement error and poor definitions. GDP is a conceptual fiasco because among other things, it fails to adquately consider capital consumption. Economics suffers from the “index number problem”, i.e., what is the “inflation rate”? If we don’t know that, how can we measure productivity? We have six definitions of unemployment, which is correct? Smoothing the business cycle? NONSENSE! This is what we got during JFK’s administration. It was balogna then, it’s balogna now.
    You deride the term “free markets”. BRAVO! I couldn’t stand Hillary Clinton when she was first lady. Why? Because she touted “the politics of meaning”. I say, Hillary, just tell us what policies you favor, what results you expect to obtain from them and how we will recognize if they’ve failed. Leave the rhetoric out.
    You write, “The benefits are concentrated, and the costs often sufficiently diffuse as to provide for insufficient incentives (or even means) for checking such behavior”. Yes. George Stigler discussed this in 1973 in his “Organization of Industry” class, calling it the “cheap rider” argument. 36 years ago? Yes.
    Donebenson:
    Thank you for providing the Keynes quote. I agree, economics emphasis on mathematics which really got rolling in 1947 with Paul Samuleson’s book has sent economics off in the wrong direction. I think Niall Ferguson, Harvard history professor, is a fine economist.
    Jesse:
    I agree with most of what you wrote. Truth is not highly valued in the US today. Economics cannot use the physics model, i.e., it has no controlled experiments. The law has become completely perverted. The SEC and DOJ are complete jokes.
    Enough.

  63. Stephen

    Difference between economists anddoctors and economists and accountants is that the latter are true professions. Economics pretends to be, but there is no licensing, not saying there should be.

    So perhaps we hould all be somewhat suspicous of people who, at the end of the day, aren’t in a profession and are not culpable for their mistakes. In some ways, listening to them is no different than listening to your well read neighbour at a cocktail party.

    Its our own damn fault that we give them the credibility that they have and not hold them up to ridicule when they fail so miseably.

  64. Anonymous

    Fundamentally, economy is not science. (I’ll fight this.)

    It’s more keen social observation covered up with “number”, sort of palm reading meet numerology for money.

    It is very good at describing “static” situation, when social assumption hold. But when people changes their mind, the model is meaningless.

    for eg. the classic example “supply and demand of ice cream chocolate” Really how would anybody predict that with enough degress of precission?

    which brings to the main problem of all economic data: It never calculate degree of confidence. All those number just shoved into the equation and the result assumed to have same degree of confidence …

    as a result, we have this fund trader that dare to promise 10%, 12%, 18% return for next 5yrs.

    All I have to say. Yeah, show me the price of Oil and dollar in the next 5 yrs, … har har… (they can’t even predict the price of economy biggest component, and they want to calculate everything else. whatever…)

    Israel launch a missile at Iran, oil spike to $150, and all those pretty numbers will have negative in front of it.

  65. Jesse

    I find myself in the uncharacteristic role of defending what I would normally rant against.

    I distinguish between economics and economists.

    Economics is a nascent science, with many of the problems of theoretical physics which cannot readily produce replicable experiments.

    Since economics is intimately tied to human behavior, in groups, the degrees of freedom in determining anything are difficult to say the least.

    But because something is difficult, because it is not yet equipped with the tools of better forecasting, does not discredit it.

    What discredits it is the bad behaviour of its practicioners, who overstate and abuse positions of ‘expert authority’ and data to sell us a bill of goods, for the sake of some ‘position.’

    They need to be called on this, more frequently than has been, and it is up to the economics profession to do this.

    I like economics. I think economists have fared no worse in this than most professions, including accountants, and lawyers, and politicians. They succumbed to a weakness. Now they must gather themselves together and recover their professionalism, going forward.

  66. Anonymous

    When I was a kid my grandfather owned a bull. We used to take him around to farms in the county. After I went with him a few times, I noticed that some in the herd were cows and some were not. I asked him why didn’t some of the males in the herd service the cows. He told me they were just advisers; like economists, they have no skin in the game.

  67. L14

    great post Yves!

    …but criticism alone will not lead towards the change of the status quo.

    when better analysis of the status quo (and its development) together with new ideas start to gain more and more ground things may start to change slowly.

    but where are the persons that have the balls, the financial independence and the network to work on (and promote) new solutions?

    maybe my eyes are not the best but i only see some lonely dancing stars at the sky, far away from each other.

    maybe it’s time to build up something new?

    a place where people can spend time to do research without financial or ideological pressure

    a place where people with different backgrounds analyse the status quo, discuss it and develop new ideas

  68. Ken Stremsky

    1st rule of economics should be expect people to often be stupid

    2nd rule of economics should be to expect businesses to often be extremely stupid. Some regulation is necessary because businesses often do not care about safe foods, safe toys, safe clothing, safe automobiles, clean air, clean water, safe working conditions, and reasonable wages. Businesses often just care about short term profits even if what they are doing ends up slitting their owns throats, putting them out of business, and possibly their executives in jail.

    Congress should have learned from the savings and loans crisis that regulation is necessary. Congress should have required down payments on homes and fixed rate mortgages. Allowing mortgage backed securities to be sold based on no money down mortgages.

    Congress should eliminate the Federal Reserve or veto many of its decisions.

    I graduated from the University of New Hampshire in 1992 with a BA Degree in Political Science and a minor in Economics.

    I ran for United States Senate in the 2002.

    I have posted comments on many columns located at http://www.newgeography.com

    My website is http://www.myspace.com/kennethstremsky

    If people want to understand stupidity of people and stupidity of businesses better I recommend they read John Locke, Machiavelli’s Discourses, the Federalist Papers, and The Art of War by Sun Tzu.

    I discuss Amendments to fix Article 6 of the Constitution and other harm caused by the passage of Amendment Seventeen which took away the ability of State Legislatures to choose any United States Senators at all on my website.

  69. Anonymous

    Jesse said – “I like economics. I think economists have fared no worse in this than most professions, including accountants, and lawyers, and politicians. They succumbed to a weakness. Now they must gather themselves together and recover their professionalism, going forward.”

    That ‘professionalism’ (of all) is based in a weakness — a scam ‘rule of law’ — that is steadily made worse in the aggregate, in ‘normal’ vanilla greed times, through the added corruption of each new generation of deceptive ruling elite gangsters.

    But these are not normal vanilla greed times. Elitism has reared its ugly head. That scam rule of law has become a monumental f****** farce! The playing field has been turned over! What is going on now is an intentional global coup by the ruling elite. Perpetual conflict for the masses is their game.

    ‘Professionals’ need to wake up, denial won’t get them through this go round. The crumbunism ladder is being reduced to two rungs. They will not be on the top rung.

    Deception is the strongest political force on the planet.

    That includes self deception!

    i on the ball patriot.

  70. Anonymous

    The Austrians are, of course, conspicuous in their absence here. Pick up “Empire of Debt” or cruise on over to “The Daily Reckoning” and you’ll see plenty of foresight about the issues that brought us here.

    Of course, we must fastidiously avoid creating the impression that libertarians have anything to contribute in sorting out this mess.

  71. Waldo

    This thread has a critically important import for the American society now!!

    Below is a powerful example of economics “gone mad” (currently still occuring).

    I am a University of Chicago alumnus (business school). I have been monitoring a felonious behavior by our Economics department since Bush took office. (This is an opportunity to abuse the U of C; understandable but we must not eviscerate our academic institution(s) out of existence for the behavior of a few powerful politicians).

    There are three men (powerful politicians) who have I think pushed the “oil” agenda during this younger Bush Administration.

    1. George H. W. Bush
    2. James A. Baker III
    3. George P. Shulz

    Bush and Baker have advised/worked for the Carlyle Group (Founder David M. Rubenstein – Chicago alum) which has considerable investments in defense contractors and energy firms. George P. Shulz was the former dean of the business school at Chicago (Bechtel director, Bectel is benefiting tremendously by the Iraq war).

    You might think of the Iraq war as a private equity deal. This type of global imperialistic strategizing is possible with this groups connections. And during the Enron heyday in Houston (George H.W. and James Baker are Houstonians) manipulating energy prices was in vogue.

    Paul Wolfowitz (Chicago Phd – economics) played a huge role in the initial push into Iraq.

    And lastly: Our young men and women (as did our Treasury)went into Iraq on March 20th, 2003.

    The first article below was published in BusinessWeek in October of 2002. The author of the article is Gary S. Becker (Chicago Economics Professor – Nobel Laureate).

    http://www.businessweek.com/magazine/content/02_47/b3809036.htm

    This second article by Becker came in February of 2003 (just before the decision to invade Iraq).

    http://www.businessweek.com/magazine/content/03_11/b3824043_mz007.htm

    This behavior by Becker is abusive and felonious (he must be criminally prosecuted). I think the U of C had a deal with this current administration and has put allot on the line.

    Virtue restoration for American has to go through the U of C.

    Ironic that both Barack and Michelle Obama worked for the U of C. But I strongly feel they are not in the criminal coup and in fact can be understanding of the criminality coming from Hyde Park, Illinois. Lets hope that they have the character to see justice through.

  72. Anonymous

    @Anon 5:51

    If you would have a swipe at ndk, you could have shown us your intellect and beaten him down proper, where did it go?

    skippy

  73. melpol

    There is no doubt that the popularity of Obama wiil further increase as he starts distributing a trillion dollars. It is estimated that close to three million new jobs will be created. Thousand of miles of wide highways and thousands of well equiped new schools will be built. Lets hope before the stimulus money runs out we will have lots of trucks on the highways and lots of bright new students ready for newly opened jobs. If the opposite occurs which is empty highways and students using the new equipment to play games it will be the biggest waste of good money in history. All we can do is sit back and hope that good fortune smiles on the U.S. economy.

  74. Just another social scientist

    Generally I try to limit my contribution to these threads, largely because I recognize I’m most definitely on someone else’s turf. That said, I’d like to point out how even this thread exhibits the very problem it intends to discuss and address:

    Most of you are treating this as a battle between economists, between economic schools, or between academics and practitioners. This indicates a fatal flaw in the majority of informed criticism:

    Economists, economic schools, academics, practitioners and anti-intellectuals are ALL (every single one of them) judging the current situation using the same paradigm of economic thinking which led to its creation.

    Economists and all schools of economic thought are inherently wedded to a utility maximizing perspective. They continue to seek the ideal means/ends combination which should guide or does guide human behavior. Fundamentally, however, means and ends are often unclear and cannot be made clear through further investigation. Some things are not utilitarian, or can only be made utilitarian through a tortured train of thought.

    Academics, practitioners and anti-intellectuals ALL debate this perspective by pointing toward factors which economists, in one way or another, have chosen to ignore or simplify for the sake of arriving at an answer.

    Taking into account some factors instead of others’ and permuting until you get the right answer is nothing but a shell game. Economists bash each other for having the wrong combination, academics bash economists for have too few factors (as well as the wrong combination), practitioners and anti-intellectuals define themselves negatively by rejecting both academia and economics for some sort of revealed cognitive heuristics which they know are correct from experience.

    Where exactly does this end? We have to stop asking the small questions and debating small points. I don’t care who finds a solution, whether it’s my discipline or another, but someone has got to find a way to end this cycle.

    To review:

    1) Academics are at fault for playing the rhetorical games that economists took as social knowledge.

    2) Economists are at fault for letting others’ take their flawed approach too seriously.

    3) Practitioners are at fault for listening to economists over other academics and their own collective knowledge.

    4) Anti-intellectuals are at fault for believing their own unique experience explains the world.

    I see all four types of these people in this thread (including myself, though I would obviously argue that I’ve been much less willing to play the game). The surest sign of insanity is the fervent belief in one’s own knowledge and logic as the sole means of understanding the world.

  75. Capricorn

    Yves, thank you so much for this much needed comment on the state of Economics.

    The Global Financial Crisis has generated a huge amount of commentary, but almost none address “why economics did not enable us to avoid the disaster”.

    But I am troubled by your conclusion: “positive view of greed allows for ambitious actors to increasingly bend the rules and amass power. . . . incentives (or even means) for checking such behavior.. . . But our collective standards have fallen so far I am not sure we can reach a better equilibrium there.”

    We want a free society, where individuals have the opportunity to be productive, and enjoy the fruits of that productivity. Gigantic stuff-ups like this crisis threaten such simple but universal goals.

    That goal implies largely free markets. So we need economics to work, at least in the sense of being able to predict potential instabilities in the markets, and to provide policy-makers with viable options to avoid crashes.

    But how many economists would agree that this is the major objective of their discipline?

    Here the comparison with Meteorology has some value. Weather forecasting has, and still is, technically challenging. But, after decades of hard work, the meteorologists do pretty well.

    One of the key differences between meteorology and economics is that economics tries to start with generalizations as a basis for theory, whereas meteorology starts with solid physics and lots of measurements, and endeavours to extrapolate from there.

    The Free Marketeers are still out in force, wanting no regulation, and wanting a grand blood-letting of all businesses too weak to survive unaided. I will not comment on what should or shouldn’t be allowed to collapse. However, regulation is an essential component of a stable financial system, and will probably be essential to the goal of accurate economic predictions.

    The “ideal” business is one with a captive supply chain, a captive market, and no regulation. This is what businesses strive to become. Looking around the business world, elements of this appear time after time after time. For example, BHP-Billiton’s efforts to merge with Rio Tinto.

    We want business to be that way. That is how we harness ambition and drive to serve society’s needs. But we do not want that motivation to dominate to the point where the financial system is de-stabilized. And that requires regulation.

    Hopefully, some leading economists will pick up the challenge of reforming economics. Hopefully articles like yours will promote such an effort. But if we give up on this, we are condemning the world to a pretty dismal future.

  76. Anonymous

    Doble M:

    Whoa!!! First, I think you were paraphrasing Khun rather than Popper. A for “Subscribing to an absolute external truth is to submit to the imperialism and tyranny of the claimant.” – please go and watch a child die of starvation, then tell us if the fact of its’ death is tyranny of some claimant.
    Science does its’ best to eliminate subjectivity from all its’ observations. Yes, there are elements of science where this is not possible. But to deny truth because of that is ridiculous. Yet that is the trap that Khun has led us into. If you cannot be sure of the laws of gravity, please go jump off a high cliff.

  77. Anonymous

    “Like it or not, there is a role for social values, as nineteenth century that may sound.”

    Dude, that’s like so unAmerican…

    ;-)

  78. Marlowe

    Yves,

    Obviously the world is watching and listening. Your article echoed, reverberated, ignited a grassfire of thoughtful comments.

    A word of caution. Ayn Rand had no influence, zip, zero. I know it’s easy to blame Rand because she was smeared and reduced to “greed is good.” The dictionary definition of greed was not hers. Perhaps you never read Rand?

    In any case, Ayn Rand has had no influence in the modern world; certainly not the ‘Me Generation’ of the 1990s; not among economists nor central bankers. Sorry to bring this up. It’s easier to fudge history and chant One Minute Hate, rather than admit the uncomfortable truth that consensus and The Great Moderation blew up the market — not Ayn Rand.

  79. eco

    Anonymous said…
    … Atta boy NDK, young, dumb, and full of . . .
    January 12, 2009 5:51 PM
    __________

    Anonymous – what’s up with that comment? NDK is probably one of the more enlightened blog contributors out there -

  80. Yves Smith

    Marlowe,

    With all due respect, Greenspan was a follower of Rand. His antipathy towards regulation was at least in part a result of her influence.

    Rand’s books continue to sell 300,000 copies a year. That alone says she still has an impact.

  81. Yves Smith

    eco,

    Wow, I missed that unacceptable comment. Ad hominem attacks are NOT tolerated here, particularly from anonymous cowards. It has been expunged.

  82. Anonymous

    It’s interesting that so many people here hammer on ivory tower, academic economists while the Godfather of bubbles, Greenspan, is basically a plumber who never even wrote a dissertation. The guy is anything but ivory tower. All that “applied experience” unshackled from the burdens of mathematical models sure did Greenspan a lot of good. Perhaps we should employ sociologists and historians to make predictions from here on out. We’ll see how successful their model free methods will be at predicting booms and busts in what is essentially a non-stationary, random environment. Or perhaps we should go the other direction and employ “real scientists” such as physcists and mathematicians. Oh yeah, I forgot, that was tried on Wall Street. They created the derivatives monster. That worked real well didn’t it?

  83. Anonymous

    I guess we could conclude that economists, as a group, simply do not take their own profession seriously. If they did, they would care very much that their bungling caused so much damage to billions of people. Instead they just care about their little infights, eh?

  84. Anonymous

    With all due respect, Greenspan was a follower of Rand.

    “Was,” being the operative verb here. He turned into a social climber and his actual policies ultimately had only a passing resemblance to ‘let it alone.’ Greenspan was a tool of politicians who wanted to placate the middle class with easy credit, and bankers who wanted to turn a buck in the process. If he hadn’t gone along with that, he would have been replaced, and we’d be talking about how Ben Bernanke read too much Milton Friedman as an undergraduate.

    One *can* take the fact that Greenspan palled around with Rand back in the day, and incorporated some elements of deregulation into an otherwise very interventionist tenure as the Fed Chair, and say, “A-ha! It was all Ayn Rand’s fault!”, but it’s pretty flimsy reasoning. Rand would have been the first to say that borrowing bits and pieces of her philosophy and suturing them onto a half-free, half-corporatist/welfare state like ours (with the Fed fixing the price of money and credit, no less) could lead to disaster.

    The solution to a failed system of privatized profits and socialized losses is to privatize the losses.

  85. Anonymous

    As an economist, I’ll just make a few quick comments.

    1. Economists, like doctors, psychologists, etc is a broad group with many specializations. The majority of us are not macroeconomists nor do we specialize in forecasting, just like the majority of doctors are not brain surgeons. So to say that “we” need to apologize is ridiculous unless you think that your daughter’s pediatrician needs to apologize for every brain surgery that goes awry.

    2. To say that economist have not tried to reform the field is not entirely accurate. Over the last 30 years, there have been several shifts in the way economists think, from the advent of behavorial economics to new schools of thought in macroeconomics. In fact, much of the infighting that occurs between behaviorists and neoclassical types, new Keynsians and Classical macroeconomists stems from attempts to improve the methodology. But economics is an evolving social science (and no I would not call it a real science yet) and in most academic disciplines, change occurs in an evolutionary fashion. That is true in all fields, not just economics. It helps weed out the suspect theories from those that will endure the test of time.

    3. To Yves: Behavioral economists do believe in social norms, altruism and other-regarding behavior. They are now becoming mainstream.

    4. I agree that mathematics and models have been abused. The worst offenders are the quant jocks that take their models literally. My personal opinion is that the purpose of a model is to provide an analogy for how the world works and to make clear one’s assumptions. Once people start confusing the analogy for the real world, then dogma sets in and the model becomes abused. Akerlof’s lemons model was a simple but extremely powerful model that has a host of applications in the real world. But I cringe when I see people trying to estimate structural versions of it.

    5. Not all economists believe in deregulation. Some of us get that there is a middle ground between anarchy and pure socialism. Rafael LaPorta and colleagues wrote a paper about regulation in financial markets (I believe it was Journal of Finance 2006) that showed that either too little or too much regulation will cause problems. A similar paper was written by Glaesor, Quarterly Journal of Economics (2002?) called Coase vs the Coasians which had similar conclusions.

    6. I personally don’t believe in forecasting and don’t understand why some economist even do it. I’d rather just be honest and say that whatever forecasts I make will be highly suspect because, unlike natural scientists, we are trying to predict the behavior of forward looking adaptive agents who are constantly integrating new information into their decisions. A forecaster cannot keep up and the data generating process will likely change from moment to moment. Flipping a coin may be be just as accurate as any forecast produced by an economist. But every discipline has its mercenaries.

  86. ndk

    Thanks to everyone for coming out in defense of open and egalitarian argument, and to Yves for mopping up. It means a lot to me.

  87. Anonymous

    10:55 economist,

    By implication, Yves is talking to economist that had something to do with either policy development, regulation, or forecasting, those how had their hands on the wheel in some fashion. Behavioral economics (except for Obama’s interest in using it to “nudge” consumers into better choices) haven’t had a role.

    As for the “Any Rand had nothing to do with it” thread, the Journal disproves it:

    http://online.wsj.com/article/SB123146363567166677.html

  88. Anonymous

    Yves,
    On the theme, What is the matter with economists?,
    you may want to check out ‘post-autistic economics’. Site:
    http://www.paecon.net/
    (The implication is that what is wrong with economics is that it is autistic, a notion I find amusing. It does appear to have some merit, especially when you consider the role Ayn Rand has played in the profession!)

  89. purple

    The minute Ivy-league schools started losing endowment was the minute most Ivy-league economists took note.

    For ‘the rest of us’, there has been a generation-long recession/stagnation in the U.S.., starting about 1972 or so. This is clear looking at median wages, savings, hours of leisure time, and many other factors.

    When it touched that the top 5% they demanded and received their 700 billion. No such niceties for the UAW workers.

  90. Windiepink

    Windiepink once asked a philosopher what an Economist is? To which the philosopher replied, Windie what do you think a Economist is?

    “A Economist,” said windiepink, “is like a blind man in a darkened room looking for a black cat that isn’t there.”

    “That’s right,” the philosopher replied, “and if he were a Economist, he’d find it.”

  91. Juan

    some tightening up required since what is being referred to is neoclassical economics which, as the attached may help some understand, is based on a few, lets say problematic, axioms* and, of course, a history**.

    as dave r. mentioned, ideology is the appropriate term.

    *Christian Arnsperger (University of Louvain, Belgium)
    Yanis Varoufakis (University of Athens,Greece)

    **István Mészáros

  92. Anonymous

    Most modern economics is written from end to beginning by the financial industry to basically save the banks at all costs when the fractional reserve lending cycle comes to an end and bamboozle third world countries into being the tribute-client states of first world countries.

    Most people doing real economics are not even criticized, just totally ignored. They write books and get ignored and denied grant money and are not payed 100s of thousands of dollars by wall street brokerages to spout their nonsense. The only salvation for the “real” economists is they might crack the code of “the game” and do well as traders — but that’s about all they get.

  93. P&L

    The three most difficult words to say in the English language are “I was wrong”. In a hotel full of people who were wrong, you need somebody who was RIGHT to get the conversation started!

    Re: “Whodathunkit”…Cheney’s already on it…In an interview today with The Associated Press, Vice President Dick Cheney said that no one saw the financial crisis coming and that President Bush had nothing to apologize for because he has taken “bold, aggressive action.”

    Speaking in the West Wing, Cheney defended the administration’s handling of the economy, which has been in recession for more than a year. Regarding the collapse, he said “nobody anywhere was smart enough to figure it out.”

    And there you have it!

  94. Alan von Altendorf

    With all due respect, Greenspan was a follower of Rand. His antipathy towards regulation was at least in part a result of her influence.

    Rand’s books continue to sell 300,000 copies a year. That alone says she still has an impact.

    With equal truth, you could say that Greenspan was influenced by Adam Smith and Henry Hazlitt.

    It’s true that Rand’s novels continue to sell. They appeal mainly to the young and The Great Unwashed. Not much of a threat to economists or bureaucrats.

    I doubt you would say that mere exposure to the idea of reason (rejection of revealed religion) and self-esteem (rejection of collective sacrifice) is fatal to good government.

    What Ayn Rand offered was unwanted 50 years ago, 40 years ago, etc — and what the American people voted for was precisely the opposite.

  95. Glen

    Having just been on holidays, had the opportunity to read the Australian Financial Review over a cuppa every morning (sad so my wife reckons). The economists employed by financial institutions are all saying the Australia will avoid a recession and will bound back in late 09 – how is never explained, it just will. In the Op Ed section, there has been alot of space dedicated to those who are not employed by such institutions and the opinions are very reasoned and quite contrary. (BTW Yves, NC got a mention in the AFR on the growing influence of blogs.) I simply don’t trust an economist’s opinion who works for a financial institution but the main failed stems from MSM’s inability to front these “experts” and call into question their abilities. It’s abit like believing a real estate forecast issued by the real estate institute.

  96. Capricorn

    Anonymous, 10:55 on 12th.
    Thanks, for wading into the discussion, and adding perspective. If I understand you correctly, you believe that it is not possible to forecast the future behaviour of the Global Financial system – true? That means, to me, that Economics cannot fulfil the role we hope for it – that of showing us how to manage the Financial system to create a stable, productive Economy.

    I suspect that this is a matter of degree, rather than a pure black or white situation. However, if it is true, then heaven help us, because we cannot help ourselves.

    Can you elaborate? Thanks,

  97. Dr James Cumes

    The “experts” in all professions get caught up with and are obsessed by mainstream beliefs, mainly those of their formative years at university and the few years after graduation. However, economists do appear to be more “mainstream” than most. They stop thinking before they’re 40 – even thirty – and many of them get hopelessly snagged on policy issues as servants or critics of, or advisers to governments or public bodies. The latter abominate change and the fresh thinking which might bring it about.
    The essence of our problems began with the breakdown of relatively stable postwar growth from 1969 to 1971. I wrote books in 1971and 1974 telling people, including my then employers, the Australian Government, that they had got it wrong. One or tow near the centre of power were impressed but they were massively outvoted by those who wanted to sit comfortable on their bums and apply the same old policies no matter what their outcomes. I wrote another book in 1984 after Reagan’s supply-side and small government extravaganza, with much the same result. More recently, I wrote “The Multiple Abyss” – the first version in 1996 – and in 2006 “America’s Suicidal Statecraft: The Self-destruction of a Superpower”. They predicted with what should have been alarming accuracy – and detail – what we have indeed now. I was described in a variety of ways by those who refused to face the accumuklating signposts to disaster. I was a “dilettante”, an “imperialist”, a “doom-and-gloom merchant” and I should go back to school and try to learn some economics. At the same time, I did find support from one or two genuine economists. One I met by chance in the late 1990s in the South of France. That was Dr Kurt Richebächer, a former German banker and the author of “The Richebächer Letter”. Those letters, over a period of some twenty or more years should be required reading whenever an analysis of the course of economic and financial theories and policies is attempted in the years to come. We discussed and debated the looming crisis into the new milennium and, at one point, seriously considered writing a joint book. If he had lived, he woluld have had the satisfaction – a sad satisfaction – of knowing how brilliant his analyses were; but of course none of those in power – or in academia – took any notice of what he had to say when It would have been most valuable.
    Just one last point: one of the idiocies of the Great Depression was that, in Australia at least, advice continued to be taken, during the 1930s, from the same “economists” who had led us into the Depression and who, especially in the years from 1929 to 1932, had made the Depression deeper and more miserable for us all. The same is happening in many countries now, including the United States. Not only are those who were in error not saying “sorry”, they are accepting positions of authority and power in government and elsewhere. “When will we ever learn?”

  98. Anonymous

    Have you ever considered the notion that when it comes to philosophy and the big picture, you just don’t know what you are talking about, Ms. Smith? For example, you smugly dismiss the use of the term “free market” in the economics profession (!), then go on an emotional crusade to defend the use of the term “greed.” (You have it backwards, by the way). You are an amateur in philosophical matters.

    As I recall, recapitalizing the banks was your idea. It has turned out to be the disaster Austrian economics and free marketeers said it would be. Perhaps you should open your mind a little to the possibility that what you were taught in school was really covert ideology and is in fact influencing your thinking today without your realizing it, and that a position without a philosophy behind it is an impossibility.

  99. Anonymous

    Why no mention of the Austrians per se?

    I see Hayek was mentioned but what of von Mises or Murray Rothbard.

    These are who Ron Paul adheres to, and from what I am witnessing, ONLY Ron Paul long ago made the recommendations needed to have avoided another Fed wrought debacle as we now have.

    The FED IS the inflator, which is contra it’s sole supposed purpose for being – to reign in and eliminate the prior inflations of banks that market participants should have rightly bankrupted w/a run, just as a warehouseman caught surreptitiously renting out his customers goods would and should be.

    The FED never reduces the quantity of money but temporarily before the next big printing spree – never on a yr/yr basis.

    It is illegal and Greenspan’s 1966-7 expounding on constitutional money, ie gold, versus fiat paper, tells it all – including his trading morals and ethics for fame and fortune.

    mise.org will set nitwit tyrannts, Marxists and Keynesians free, w/7 terabytes of free published online works, MP3s and Videos, from Frederic Bastiat to Jean Baptiste Say and more.

    Power elites funded Keynes to rob the people w/another criminal fiat system – none which in history have ever survived nor ended nicely.

  100. Mark A. Sadowski

    Yves,

    Thank you for the link to Jeff Madrik’s post. I thoroughly enjoyed it. I have nothing to add to his list. My sense however is that there less a crisis in economics than a crisis for those economists who got it wrong. One could easily list at least a dozen academic economists, mostly Behavioral or New Keynesian, who warned of the impending crisis if one were so inclined. One can only hope that the media will continue to shift its focus to them.

    Many of those economists who did not see this coming, such as Greenspan and Feldstein do seem to be reexamining their convictions. Indeed, the notion that the market could be self regulating seems to have been pervasive among those that got it wrong. On the other hand there are others such as Greg Mankiw who are unrepentant. He wrote a new York Times article that seemingly intentionally missinterpreted a working paper ny Christina Romer in order to push his anachronistic supply side solutions to a demand side problem. He seems as unreflective as the president he once advised.

    It’s also interesting that Ayn Rand apperantly is a common thread between the increasingly discredited New-Classicists/Supply-Siders and the Austrians. The Austrians, with their perpetual predictions of hyperinflation seem to have recently come out of the woodwork in droves. My advice to them is to put down your Ludwig von Mises and go make your bed and do your homework.

  101. Anonymous

    @capricorn

    I personally think forecasting is very difficult. It’s even more difficult when we are talking about human beings because human beings are not passive and pull new initiatives, inventions, etc. out of their hats. It’s virtually impossible to predict these things so it is a highly unstable environment.

    But I wouldn’t worry too much about it. Forecasting anything is hard. Ask your mechanic to predict the time and day your car will break down. He may know cars inside and out but I doubt he can do it. But he knows how to fix your car after it breaks. The job of a social scientist, in my opinion is not really about forecasting but to understand society better and *hopefully* come up with better policies and solutions, although we obviously have a long ways to go….

  102. Andrew Bissell

    The Austrians, with their perpetual predictions of hyperinflation seem to have recently come out of the woodwork in droves.

    Many of the Austrians who have predicted hyperinflation simply misunderstand the role of credit and its destruction in producing deflation. But plenty of Austrian economists and Austrian-influenced commentators, including Mike Shedlock, Frank Shostak, Marc Faber, Kevin Depew, and Robert Prechter, have been pointing to deflation as a likely outcome for some time now.

    So, sorry, I know you’re grasping for reasons to keep dismissing Austrians, but some bad (so far) calls for hyperinflation by some Austrians aren’t a legitimate reason to ignore an entire school of thought.

    My advice to them is to put down your Ludwig von Mises and go make your bed and do your homework.

    As long as we’re descending into the petty and childish, I’m tempted to tell you where you can stick your ‘advice.’

  103. hbl

    a housing bubble in many countries (the Economist had a major story on it in June 2005 and as readers well know, prices rose at an accelerating pace)

    Actually The Economist had a cover story on the global housing bubble called House of Cards in May 2003!!!

    It warned of the negative impacts of housing busts but then the magazine somehow forgot about the whole thing in the years after (too many unhappy NAR subscribers?)

  104. Anonymous

    From “On Value and Values: Thinking Differently About We In An Age Of Me”:

    “Greed is not good. Its less excessive cousin — self-interest — is good insofar as it makes markets efficient. But greed is sinful. Our challenge is figuring out where self-interest leaves off and greed begins in a world of markets, networks, organizations, families and friends — a world where character and values are less transparent than in Adam Smith’s or Thomas Jefferson’s world of places.”

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