Tuesday, January 18, 2011
Most Economists Fall Back Into Neoclassical Stupor ... "If They Don't Know Anything, Then Why Should We Listen To Them?"
When the economic crisis hit in 2008, economists started to admit that neoclassical economics was wrong.
Specifically, they started to admit that the assumption that the economy is inherently stable is false, and that their models were faulty and needed to be adjusted. See this, this, this, this, this, this, this, this, this, this, this, this, this and this.
But now that - on the surface (here's what you may see if you scratch below the surface) - things seem to be improving, most economists are falling back in their neoclassical stupor.
For example, two PhD economists - Steve Keen and Dean Baker - recently attended the annual meeting of the American Economics Association. They are both exasperated that most economists have not learned anything at all from the crisis.
Keen reported on his surreal experience on the Max Keiser show, stressing that most economists still use defective models and believe the fairy tale of the inherent stability of the economy:
And Baker writes:
The American Economics Association held its annual meeting in Denver last weekend. Most attendees appeared to be in a very forgiving mood. While the economists in Denver recognised the severity of the economic slump hitting the United States and much of the world, there were few who seemed to view this as a serious failure of the economics profession.
The fact that the overwhelming majority of economists in policy positions failed to see the signs of this disaster coming, and supported the policies that brought it on, did not seem to be a major concern for most of the economists at the convention. Instead, they seemed more intent on finding ways in which they could get ordinary workers to accept lower pay and reduced public benefits in the years ahead. This would lead to better outcomes in their models.
The willingness of economists to so quickly embrace this darker future is striking. After all, one of the reasons that we have economists is, ostensibly, so that we don't get such unpleasant news about a "new normal". This is like a football team calmly accepting the sports writers' prediction that they would have a winless season, and deciding that their new goal was to minimise the margin of defeat.
If economists did their job, they would be pushing policies to get the economy quickly back to full employment. Instead, they just repeat lines about how "we" will just have to accept some rough times. Unfortunately, no one ever asks the economists who preach austerity how much time they expect to spend in the unemployment lines.
If they don't know anything, then why should we listen to them?