Fama doesn’t pass Solow’s smell test

23 Oct, 2013 at 15:52 | Posted in Economics | 1 Comment

Following the greatest economic depression since the 1930s, Nobel laureate Robert Solow has complained that modern macroeconomics has not only failed at solving present economic and financial problems, but actually is “bound” to fail since it’s based on models that do not pass the smell test: “does this really make sense?” Solow’s surmise is that a thoughtful person “faced with the thought that economic policy was being pursued on this basis, might reasonably wonder what planet he or she is on.”

Reading the Fama interview below I would argue that he doesn’t pass Solow’s smell test:

In the past, I think you have been quoted as saying that you don’t even believe in the possibility of bubbles.

Fama: I never said that. I want people to use the term in a consistent way. For example, I didn’t renew my subscription to The Economist because they use the world bubble three times on every page. Any time prices went up and down—I guess that is what they call a bubble. People have become entirely sloppy. People have jumped on the bandwagon of blaming financial markets. I can tell a story very easily in which the financial markets were a casualty of the recession, not a cause of it.

That’s your view, correct?

Fama: Yeah.

John Cassidy

Fama doesn’t make sense — wonder what planet is he on …

1 Comment

  1. I just saw this post:Fama, Hansen, and Shiller: An excellent choice of Nobel laureates
    Source: http://www.voxeu.org/article/fama-hansen-and-shiller-excellent-nobel-choices
    I thought it might be satire.
    I was wrong.

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