Magoo economics

15 March, 2016 at 08:41 | Posted in Economics | 2 Comments

absdThere is widespread disappointment with economists now because we did not forecast or prevent the financial crisis of 2008. The Economist’s articles of July 18th on the state of economics were an interesting attempt to take stock of two fields, macroeconomics and financial economics, but both pieces were dominated by the views of people who have seized on the crisis as an opportunity to restate criticisms they had voiced long before 2008. Macroeconomists in particular were caricatured as a lost generation educated in the use of valueless, even harmful, mathematical models, an education that made them incapable of conducting sensible economic policy. I think this caricature is nonsense …

The recession is now under control and no responsible forecasters see anything remotely like the 1929-33 contraction in America on the horizon. This outcome did not have to happen, but it did.

Robert Lucas

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  1. When people take the rhetorical line that no one forecast the financial crisis, they forego the opportunity to point out that someone had the foresight to hire Ben Bernanke, an economist who had made a career out of figuring out how a great Crash could be handled without provoking the institutional reforms that marked the Great Depression.
    .
    However much we may disparage Lucas for his dubious intellectual achievements, we ought to recognize that he has the satisfaction of great practical success. He transformed the economics profession from a fertile ground for pro-social reform and public management into a bulwark of defenses for plutocratic predation. The U.S. financial sector spiralled into accelerating corruption, crashed the world economy, and ended up in undisputed control of the U.S. government. And, the vast majority of economists with prestigious positions either aided their cause or blinked uncomprehendingly.

  2. Lucas delivered the 2012 Friedman Forum lecture at Chicago U. At the end of the lecture he took questions from students. There were times where he seemed sheepish and uncomfortable and to be not willing to tackle the issues that the students were putting to him. While US economic professors at large may have fallen into the neoliberal line, it may be that students have their own ideas about social values and how economics might reflect them. There might be hope yet for American economics.


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