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Economists, defend thyselves!

Scott Jagow Mar 2, 2009

I remember vividly my first day taking a class on Soviet politics in college. The class began in August, 1991. The Soviet Union was collapsing before our eyes. By the end of the semester, it would be gone. That first day, my professor walked into the room carrying a copy of the $60 textbook on Soviet politics I had just purchased. Then, he promptly threw it in the trash can and said, “we won’t be needing that anymore.”

I imagine quite a few economics professors must be doing the same thing about now. Economist Paul Kedrosky, the “infectious greed” blogger, points out a new research paper that proclaims a systemic failure of economists:

The economics profession has failed in communicating the limitations, weaknesses, and even dangers of its preferred models to the public… It is obvious, even to the casual observer that these models fail to account for the actual evolution of the real-world economy…. In our hour of greatest need, societies around the world are left to grope in the dark without a theory.

I’d say that about sums it up. Of course, who gives a rat about theories when you don’t have a paycheck or a 401-K. But having a little more information before the sky fell might’ve been nice. The report says economists ought to have an ethical code — that they have a responsibility to tell people about the limitations and potential abuses of their models.

Keep in mind, this report comes from a group of (mostly) economists from around the world. Some of the economists I met at an economic blogging forum last week still believe the old boom-and-bust economic models explain what has happened here. But this report says let’s not forget about the crazy new investment vehicles that prompted this particular boom, and the unprecedented interconnectedness of the financial system. Traditional theories don’t take those things into account.

Kedrosky, who was at the conference last week, sums up the report by saying, “In short, we economists suck.”

Come on, Paul, that’s not true. I just won’t be buying any economic textbooks for a good, long while.

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