Why So Little Self-Recrimination Among Economists?

Promoted. -- GH

Yves Smith at Naked Capitalism picked up an excellent article by former economics columnist Jeff Madrick, who attended the just-concluded annual conference of the American Economics Association, How the Entire Economics Profession Failed. Madrick writes:

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.

“No one questioned their contribution to the current frightening state of affairs, no one humbled by events.”

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.

Yves Smith adds some excellent commentary in her piece, Why So Little Self-Recrimination Among Economists?, inclduing an insightful quote from Thomas Palley, in April 2008:

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.

Smith also rips into the recent paper by Daron Acemoglu, The Crisis of 2008: Structural Lessons for and from Economics, which, Smith observes, "fell so far short of asking tough questions that it proves Madrik's point. The analysis is shallow and profession serving." Noting that Acemoglu argues  that "greed is neither good nor bad in the abstract," Smith writes:

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.

Madrick lists a score of assumptions that mainstream economists made such as

Low rates of unemployment were proof the American economic model was working. In light of this, stagnant or falling wages in the 2000s was not an indication of economic failure—just a reflection of American competitiveness.

It is a blistering indictment of the economics profession, though the only names named by Madrick are a handful of economists who stand out for having been Cassandras, when the rest of their colleagues were cheering on the financial gamesmanship of the post-industrial society. 

Unfortunately, Madrick never gets around to explicitly stating that economics should be concerned with the general welfare of all people in a society, but his last few paragrpahs still pack a lot of punch:

What most economists can't seem to acknowledge is that they have been overcome by free market ideology over the past thirty years. Such ideology is especially beneficial to wealthy vested interests. But economists are purportedly dedicated to objective empirical and statistical analysis. Ideology has little part in the work of these serious empiricists, but surely there was no buttering up of the rich and powerful that provide jobs and grants.

Only with the near collapse of the economy are economists changing their tunes slightly, accepting the need for regulation and Keynesian stimulus. But they will probably not change their deepest assumptions about how markets work, or about when they should and should not be given free reign. They will make no bigger place for government than to adjust a little more for “market failures.” They will go back to tinkering with those models, not transforming them, and even make them fit the current crisis without blinking an eye.

Government has a central place in the economy, after all, as the Obama administration is about to demonstrate. It is not merely an option of last resort. In general—and I think the above examples of dereliction of duty make it just fine to generalize—mainstream economists are a long way from getting that fundamental idea.

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{{{  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.  }}}


 Now that is funny.  It is now 40 years after the Moon landing.  John Kenneth Galbraith was talking about the planned obsolescence of automobiles 10 years before the landing on the Moon.  Do the laws of physics change every year?  Is there really a LOGICAL reason to change the designs of cars every year?  But do these geniuses of economics think to tell the American people how much they lose on the depreciation of automobiles every year?  NO!  It has only been FOUR TRILLION DOLLARS since 1995 for the United States.  What has it been for the entire world since the moon landing.  WHO KNOWS?


We must face the fact that the economic power game that we call economics depends on most people being losers.  That means they are not supposed to understand the game.  What is in the economics books is not supposed to be about how things really work.  The educational system is part of the scam.  Double-entry accounting is 700 years old.  Can it possibly be so complicated that most high school kids couldn't learn it, especially with today's computers?  When have you heard an economist say that EVERYONE should understand accounting?  If you check the curriculum for economics you will find that economists don't even have to take accounting.  What sense does that make?


"Economics is extremely useful as a form of employment for economists." - John Kenneth Galbraith


I never heard of Galbraith suggesting mandatory accounting.


Kill an economist for Karl

"Economics is extremely useful as a form of employment for economists." - John Kenneth Galbraith

I know this isn't a laughing matter, but that gave me a good chuckle.

I understand accounting, but have never been able to understand economics. -sigh- 

but have to tell you, I love the title!

"I hope we shall crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government in a trial of strength, and bid defiance to the laws of our country." - Thomas Jefferson