Finances, Globally...
I'm not saying that I'm happy we're in this massive financial morass, especially considering the fact that I am one of the massive numbers of unemployed persons, but I must say, it is a slightly sweet sensation to feel somewhat justified.
I just read an interesting article in the New York Times by Paul Krugman discussing the utter collapse of economics amidst the chaos from the current "difficult fiscal environment."
Essentially, Krugman laments the lack of decent scholarship among economists in academia, pointing to the fact that the most 'oft heard refrain in academic circles at this point is, "No one could have predicted..." what he feels most certainly COULD'VE been predicted while those who made warning noises were heckled.
He gives a little economic history lesson:
Pre-1930s depression - Markets are infallible and stable (Neoclassical Economic Theory)
1930s depression - John Maynard Keynes says markets ARE fallible and can be unstable. Governent intervention to stabalize the market is good since the government can stimulate the economy when consumers aren't
Post-1930s depression - Milton Friedman comes along and says the Neoclassicists were right; People begin to have faith in monetary policy
Leading up to the current "recession" - Markets are always right, always stable, and regulate themselves, people always act rationally and hell, this model is pretty and all wrapped up in sophisticated math
Ooops....
So I would say one thing about this...whoever makes the assumption that people are rational actors operating in a perfect marketplace under ideal conditions has been spending FAR too much time in the Ivory Tower. Or the White House...
I like economics as a discipline, I really do, but the thing that has always bothered me is that so many of the theories operate on the assumption "all things remaining equal." All things hardly ever remain equal! That's one of the primary reasons the social sciences are considered "soft" sciences--because they cannot operate under controlled lab conditions like the "hard" sciences. Economics, since it deals with numbers as affected by human behavior, simply cannot make a "hard" science assumption. And that's basically what Krugman was saying. Yes, those equations and models are pretty and oh, wouldn't it be nice if it were simple and elegant like that. But it's not. Economics is messy for the sheer reason that it involves human behavior and human behavior is messy. Economists should really come down from their elitist clouds and take a good, hard look at the real world. Besides, messy conditions are much more fun to play around in...and they take more skill.
This is a long article, but it is well worth the read. Krugman offers a lot of information that I didn't touch on (primarily because he articulates it much better than I ever could, which, you know, makes sense given that he's a Nobel-prize winning economist...) and provides quite a bit of food for thought. I particularly enjoyed the explanation of saltwater and freshwater economists, and I played intellectual games with myself comparing these groups' geographic locations with generally-accepted geographic political leanings. No, of course it's not that simple...but it was food for thought...
...kinda sweet...
~snowdragonne
I just read an interesting article in the New York Times by Paul Krugman discussing the utter collapse of economics amidst the chaos from the current "difficult fiscal environment."
Essentially, Krugman laments the lack of decent scholarship among economists in academia, pointing to the fact that the most 'oft heard refrain in academic circles at this point is, "No one could have predicted..." what he feels most certainly COULD'VE been predicted while those who made warning noises were heckled.
He gives a little economic history lesson:
Pre-1930s depression - Markets are infallible and stable (Neoclassical Economic Theory)
1930s depression - John Maynard Keynes says markets ARE fallible and can be unstable. Governent intervention to stabalize the market is good since the government can stimulate the economy when consumers aren't
Post-1930s depression - Milton Friedman comes along and says the Neoclassicists were right; People begin to have faith in monetary policy
Leading up to the current "recession" - Markets are always right, always stable, and regulate themselves, people always act rationally and hell, this model is pretty and all wrapped up in sophisticated math
Ooops....
So I would say one thing about this...whoever makes the assumption that people are rational actors operating in a perfect marketplace under ideal conditions has been spending FAR too much time in the Ivory Tower. Or the White House...
I like economics as a discipline, I really do, but the thing that has always bothered me is that so many of the theories operate on the assumption "all things remaining equal." All things hardly ever remain equal! That's one of the primary reasons the social sciences are considered "soft" sciences--because they cannot operate under controlled lab conditions like the "hard" sciences. Economics, since it deals with numbers as affected by human behavior, simply cannot make a "hard" science assumption. And that's basically what Krugman was saying. Yes, those equations and models are pretty and oh, wouldn't it be nice if it were simple and elegant like that. But it's not. Economics is messy for the sheer reason that it involves human behavior and human behavior is messy. Economists should really come down from their elitist clouds and take a good, hard look at the real world. Besides, messy conditions are much more fun to play around in...and they take more skill.
This is a long article, but it is well worth the read. Krugman offers a lot of information that I didn't touch on (primarily because he articulates it much better than I ever could, which, you know, makes sense given that he's a Nobel-prize winning economist...) and provides quite a bit of food for thought. I particularly enjoyed the explanation of saltwater and freshwater economists, and I played intellectual games with myself comparing these groups' geographic locations with generally-accepted geographic political leanings. No, of course it's not that simple...but it was food for thought...
...kinda sweet...
~snowdragonne