First We Kill All the Economists, Part XXIV

The Financial Crisis and the Systemic Failure of Academic Economics 
David Colander, Hans Föllmer, Armin Haas, Michael Goldbery, Katarina Juselius, Alan Kirman, and Thomas Lux

[From the conclusion] …"We believe that economics has been trapped in a sub-optimal equilibrium in which much of its research efforts are not directed towards the most prevalent needs of society. Paradoxically self-reinforcing feedback effects within the profession may have led to the dominance of a paradigm that has no solid methodological basis and whose empirical performance is, to say the least, modest. Defining away the most prevalent economic problems of modern economies and failing to communicate the limitations and assumptions of its popular models, the economics profession bears some responsibility for the current crisis. It has failed in its duty to society to provide as much insight as possible into the workings of the economy and in providing warnings about the tools it created. It has also been reluctant to emphasize the limitations of its analysis. We believe that the failure to even envisage the current problems of the worldwide financial system and the inability of standard macro and finance models to provide any insight into ongoing events make a strong case for a major reorientation in these areas and a reconsideration of their basic premises."

In short, we economists suck.

[via Mark Thoma]

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  4. My 2007 IPO Thesis: Part XXIV in a Series
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Comments

  1. rdd says:

    The lack of hard science that doctors work with is one of the reasons that health care costs are so high in the US. There is very poor data out there on the effectiveness of many treatments, especially newer ones that cost lots of money.

    Even physics keeps coming up with cases that seem to disprove what everyone thought to be true (dark energy and matter is one example). However, physics has been able to come up with functioning models for many problems, like motions of the planets etc.

    Economics' big failure has been the lack of any functioning models that can survive a typical business cycle of more than a decade or so. Major test conditions, such as the Great Depression, simply lead to massive arguments from completely opposing viewpoints and conclusions.Imagine if physics were still having an argument about whether or not the sun revolved around the earth or visa versa.