Re: [Pen-l] How the Entire Economics Profession Failed

[Jim Devine <jdevine03@xxxxxxxxx>]

Jeff Madrick writes:
>...  the exceptions [to the Econ. profession's smug consensus] were partial at best, and they [Shiller, Roubini, Baker, etc.] prove the rule. 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.<

There is a significant percentage of economists who are not dedicated
to "objective empirical and statistical analysis." Instead, they build
abstract models of an idealized world, sandcastles in the air. More
generally, instead of valuing knowledge or wisdom, the profession
values and rewards mathematical technique, including those of
statistics.

And even those committed to "objective empirical and statistical
analysis" most often use statistical models that assume merely
Gaussian randomness, with no Keynesian uncertainty and no Mandelbrot,
while believing that the future world is simply a continuation of the
observed world of the past. The classic result of this kind of
thinking is the case of LTCM,[*] which failed in 1998 (led by a raft
of "smart" economists, including two who won "Nobels"); its disaster
was repeated on the gargantuan scale 10 years later.

[*] This was a modern version of the Holy Roman Empire, which was
neither holy, nor Roman, nor an empire. It wasn't long-term in its
perspective, it didn't deal with capital (long-term instruments), and
didn't really manage as much as arbitrage. It also wasn't a hedge fund
but rather a speculative fund that made its relatively high profits
via leveraging.
-- 
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
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