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Tuesday
Jan272009

Orthodox economics is in crisis. Or maybe not.

In this post, Mark Thoma quotes from a Paul Krugman post, elaborates on it, and links to Brad DeLong's post, all savaging the Chicago School orthodoxy that has been so influential for 3 decades. Krugman says economists who "have spent their entire careers on equilibrium business cycle theory are now discovering that, in effect, they invested their savings with Bernie Madoff." Thoma thinks "what has happened will have a much bigger impact on the profession and the models it uses to describe the world than most economists currently realize."

There are more comments than usual, many way beyond heartfelt. Interestingly, the defenders of the Chicagoans don't really defend their view as right on the merits but attack as worse what they assume is the alternative. Lots of speculation about why economists keep giving bad advice. Commenter "Not Mark T" says "My old poli-sci advisor used to smirk, "Better to be wrong than to be irrelevant."

On the other hand, Jeff Madrick mingled in person with thousands of economists early this month and found no self-awareness of any problems in the profession.

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.

Paraphrasing Not Mark T, maybe the necessary introspection and re-education would go faster if those who were wrong were made irrelevant. Hasn't happened so far in the Obama Administration.

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Reader Comments (2)

The above comments re the academic world really mirror Taleb's slams in the Black Swan. The academics aren't any better than the bankers, just lower down on the firing line. It's revolting.

January 31, 2009 | Unregistered Commenterchristine

Angry Bear comments: 111

Thoma comments: 26


Mark and I get along just fine. I love his style. But AB is for a wider audience and is a magazine style with lots of choices for a variety of sophistication of readers. Yet we have serious econ people plus business people, a poet, and an historian.

February 1, 2009 | Unregistered CommenterRdan

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