This essay is absolutely ridiculous. If a bridge collapses, does it make sense to blame physics professors or the engineers who built the bridge? The analogy applies perfectly here, and if the author doesn't understand the difference between economics professors and economics practitioners then he shouldn't be writing about economics.

So the answer is stronger central government? What's next after that, five-year plans? See you at the tractor factory, comrades.

Perfect piece as far as I'm concerned. It does explain a few things. I remember Reading Annual Reports as a kid and they were pretty straightforward. The double speak that appeared right around 1984, interestingly enough, is in fact what caused Markets to derail. Annual Reports became Cheerleading Shows and provided very little 'information' and instead a great deal of speculation about the 'future' of their company. When Congress tried to reign in these ideas, and others, with Sarbanes-Oxley, Businesses rebelled 'en force.
Annual Reports have been a waste of time for so many years, I simply ask not to receive them, or if they arrive by error, they go straight into the wastebasket. This is a very sorry state of affairs to be sure and a clear sign of our need for Reform.

What amazes me about the Economics Profession is that they know so little. Can anyone in the economics profession tell me exactly 'where' CDS's are traded? If that market ever existed, where is it publically traded? Who the market maker is in these Securities? It might be important to know something like that.

Lastly, we have a rabble of 'professionals' out there in fields like Law Enforcement, Economics, Courts, Accountants, even Football Players who shoot 'hisself'. The problem simply being that they are a complete disgrace and seem never to know it themselves. Kind of like Paris Hilton. I am glad to see that all of the nonesense is ending and I am afraid that, true to form, nothing less than a full blown Economic Depression is what is needed to instill some sense of propriety. I just hope that it doesn't end in another World War, like it did the last two times these things happened. People do have to eat, or did someone forget about their neighbor again why they were screaming there is no God?

There is a huge jump from what is being proposed by Jeff or the new administration and 5 year plans, so I suspect that is not "next". If the stimulus package doesn't work at least that is equivalent in effect to the current administrations dole of taxpayers money to the rich which certainly isn't working.

By the way Jeff, I'd like to add another major mistake that I'm sure the current batch of economists promulgated and that is; replacing me with someone that would work for half the salary in India or Shanghai. Didn't anyone think that my lack of a job might impact our local economy negatively? I'm not sure what the long term thinking was that said removing all decent paying jobs from the US would be good for Americans.

By the way, I suspect that the reason the batch of economists that you interviewed and observed were probably in shock and therefore not able to recriminate themselves. Supposedly economists are a staid and sober bunch that progress very slowly and therefore the why's and wherefores that would point a few fingers and possibly solutions haven't caught up to them just yet. You have to imagine what it must be like to have the burden of the current financial collapse on your shoulders. I'm sure many of them must feel like snails that have been squashed by a big rock.

Also, in an effort to be more of "the man" economists may have taken the position that their theories and essays are important and should be used to drive financial regulation (or the lack thereof) and innovation. So, along with the authority and power, comes the responsibility and that takes us back to the snail under the rock image.

Of course, and this is the crux of the matter, their theories are all good and possibly useful if used by careful, well intended people to benefit all of us. What actually happened is that the theories were cherry picked by people in power to support personal agendas that may not have included benefitting the rest of us. I can't say that this is unusual, to paraphrase a cliche: if you don't study history you are bound to repeat it. The misuse and abuse of theories and statistics has been a passtime of those in power for a long time. Maybe it's time that the economists started another branch studying how economic theory can be abused to the benefit of some and detriment of others. There are certainly many practitioners to be studied and probably even some simple additional economic theory abuse theories to be developed that could be tested out (hopefully prior to mass adoption by the financial and political communities).

Anyway, several decades ago we decided to roll the dice with trickle down economics, and now we are seeing the result of over indulgence in that single theory. I can only hope that the current batch of economists and politicians will pick another theory and possibly a much more conservative approach to applying it. Oh, yes, transparency would be nice too.

Perhaps many too many leaders of the family of humanity today live arrogantly and greedily in our planetary home. They appear to take pride in their unsustainable behavior. Certainly, we will "have our cake and eat it too," they say. They own fleets of cars, fly around in thousands of private jets, live in McMansions, exchange secret handshakes, frequent exclusive clubs and distant hideouts, and risk nothing of value. They will live long, large and free, so they say. Please do not bother them with the problems of the world. They choose not to hear, see or speak of them. They hold much of the world's wealth as well as the extraordinary political/military power great wealth purchases. If left to their own devices, they will continue to self-righteously exercise their 'inalienable rights' to conspicuously consume whatever they desire; to recklessly dissipate Earth's resources and expand economic globalization unto every corner of our natural world and, guess what, beyond; to carelessly consent to the unbridled global growth of human numbers so that where there are now 6.7 billion people, by 2050 we will have 9 billion members of the human family and, guess what, even more people, perhaps billions more beyond 2050, if that is what they wish. They are the self-proclaimed Masters of the Universe. They enjoy freedom and living without regard to human limits and Earth's limitations. They adamantly eschew any talk of the personal responsibilities that come with the exercise of personal freedoms or any discussion of the existence of biophysical boundaries. They deny good science or consider it junk. Climate change is a hoax to them.

Many too many of our leaders and all of the self-proclaimed Masters of the Universe among us choose to deny the existence of "limits to growth", even though abundant scientific evidence of the existence of such boundaries is available. Please understand that these 'Masters' do not want anyone presenting them with scientific evidence that they could be living unsustainably in an artificially designed, temporary world....a manmade world filling up with gigantic enterprises, virtual mountains of material possessions, ill-gotten gains, phony profits and filthy lucre.

Scientists appear not to have found adequate ways of communicating to the family of humanity what people somehow need to hear, see and understand: the rapacious dissipation of Earth's limited resources, the relentless degradation of the planet's frangible environment, and the increasing risk of destroying Earth as a fit place for human habitation in our time, when taken together, appear to be proceeding at breakneck speed now, moving toward the precipitation of a catastrophic ecological wreckage of some sort.... unless, as a matter of course, the world's colossal, artificially designed, soon to become patently unsustainable global economy continues to speed headlong toward the monolithic 'wall' called "unsustainability" at which point the unbridled expansion of the runaway global economy crashes before Earth's ecology is collapsed.

Who knows, perhaps we can still realistically and hopefully hold onto the expectation that behavioral changes by many members of the human community will encourage others, even the Masters of the Universe, to go forward from this time and place toward the achievement of new goals: restricted and "right-sized" rather than unbridled and ever larger-scale production, restrained rather than outrageous per human over-consumption and the regulation of human population growth..... changes that save both the human economy and God's Creation for our children and coming generations.

Steven Earl Salmony
AWAREness Campaign on The Human Population,
established 2001
http://sustainabilitysoutheast.org/index.php

The greatest bit of economic nonsense of the last fifty years in economics: that there is such a thing as a free market. It's not the fact of government participation that matters; its how the government participates.

We listened too long to Milton Friedman and not all to Karl Polanyi.

Why aren't professional economists hanging their heads in shame, indeed? I've long thought of economics as a severely flawed discipline, ever since I read the IPCC report about global warming by that British economist (blanking on his name right now) who called global climate disruption "the biggest market failure in history," or words along those lines. Since then I have discovered the neonatal field called "ecological economics." Ecological economics is a movement that seeks to have professional economists take into account the real-world relationships between money, people, materials, energy, work, and natural resources. Ecological economics attempts to assign value to things like rain forests (what is clean air worth to you?), wetlands, (clean water?), forests (topsoil, lack of landslides?), and so on, in order that we can have a true accounting of the costs of doing business on this earth. For example, a classical economist will tell you that by opening a factory in location X, you will create y number of jobs and z amount of tax renevue--a net gain for the local economy, right? But an ecological economist will ask, what is there right now? A field, a forest? What will we lose if we build the factory? Furthermore, what outputs will the factory create? Who will pay for clean-up of any pollution that happens? Basically, it's an attempt to more accurately represent reality.

I don't know whether ecological economics could have helped foresee this current crisis, but I do believe that the fundamental mindset is less likely to be co-opted by the interests of the filthy rich. Ecological economics will show that the current system is untenable; it is a linear system, and we live in a closed system (excepting, of course, the regular inputs of energy from the sun, which is really no exception at all since it is the foundation of all life). That fact is inescapable. We might think we've jumped out of the restrictions that limit all other forms of life on this planet, but we should wait a couple generations before we make the final determination.

Just a little rebuttal here...

Mikestain wrote:
"This essay is absolutely ridiculous. If a bridge collapses, does it make sense to blame physics professors or the engineers who built the bridge? The analogy applies perfectly here, and if the author doesn't understand the difference between economics professors and economics practitioners then he shouldn't be writing about economics."

The crucial question to ask here is, "Were the engineers who built the bridge that collapsed applying the lessons they learned from their physics professors correctly or incorrectly?" If they were applying their lessons correctly, then you should absolutely take up the issue with their professors, and that is perfectly analogous with the situation at hand.

Furthermore, I believe that if economics professors incorporated the laws of ecology into their models, they would have a much more accurate representation of reality, much more testable models, much more robust powers of prediction, etc. They could apply the laws of ecology, much the same way bridge engineers apply the laws of physics.

This is one of the most radical suggestions that I have ever heard. Change the curriculum for Economics 101 and 102? Too many intelligent young people say "I don't understand economics". What a joke. They just don't understand the relevance of neo-classical malarkey plus math. The best thing that could happen to our universities is to get a more diverse economic curriculum. Has anyone read Hodgkinson's "A New Model for the Economy" textbook?

I just want to say I joined this sight when it first popped up and I really like it. But Banjo1 has made comments on all of these articles and they are negative, republican talking points. If he just go around inciting people, how come I can't call him a D bag? I mean didn't the republicans go extinct yet? Or I guess you can't go extinct if you don't believe in evolution.

Banjo1 tells it like it is in this blog....my first one....I haven't read his others. However liberals usually have a time dealing with time tested facts. They always want to depend on "the government" as the answer. To be informed go to fee.org and read the "Myths of Great Depression" for facts.

mikestrain said...

This essay is absolutely ridiculous. If a bridge collapses, does it make sense to blame physics professors or the engineers who built the bridge? The analogy applies perfectly here, and if the author doesn't understand the difference between economics professors and economics practitioners then he shouldn't be writing about economics.

Thanks dude, you totally proved the author's point, lol. There is a huge difference between the laws of physics and the laws of economics. The laws of physics are set forth by the universe itself and codified in the behavior of every unit of matter and energy. The laws of economics are set forth by man, a fallible and very limited creature. The author is commenting on the arrogance of the economists who fail to even consider that their perfect theories and observations may not be quite so perfect. No one is saying that this crash invalidates the entire discipline of economics but it does suggest that there may be some tweaking that needs to be done. After all, the laws of physics prohibit matter-less mass but apparently the laws of economics completely allow value-less assets.

I have been asking this question for years, being acquainted with business graduates who espouse philosophies that fail to take into account the realities of the market and real people's lives.

IMHO business schools need to take some responsibility for the subsequent actions of their pupils. They are merely the symptom of the underlying failed economic theories.

To fail to incorporate reality into a theory is to render it inoperative, something only too well borne out by our current financial crises.

It's not just dollars, folks.

People actually are part of the bottom line also.

Since at least the Great Depression the field of economics has been a tug of war between Keynesians and Classicists, the Keynesians having dominated for perhaps the first 40 years and the Classicists for the other half. Each fought the conventions of their day and because they were right in their time assumed their policy perscriptions would always be correct. Now we have come full circle and one again a younger generation of Keynesian economists is rising through the ranks fighting against the (now) stale ideas of the Classicists. I suppose we are doomed to repeat this pattern of a rising and declining dominance of opposing but interdependent schools of thought every 80 years or so.

Among the Classicists, at least Feldstein and Greenspan seem capable of reexamining their convictions. Greg Mankiw however is still pushing supply side solutions to a demand side problem. In the New York Times recently he seemingly intentionally missinterpreted the implications of a working paper by Christina Romer to push his now anachronistic policy prescriptions. He seems as unreflective as the president he once advised.