Orthodoxy and its limits

Yves Smith of Naked Capitalism rightly takes to task the economics profession in general and the "normal science" specific to the practice. She made her criticisms because it is now obvious that most professional economists in the United States missed the many signs pointing to an impending and devastating economic crisis, that they are now failing to identify their mistaken analyses and prognostications and that they are also failing to learn from their mistakes in this matter.

A few choice snippets:

Economic policies in the US and most advanced economies are to a significant degree devised by economists. They also serve as policy advocates, and are regularly quoted in the business and political media and contribute regularly to op-ed pages.

We have just witnessed them make a massive failure in diagnosis. Despite the fact that there was rampant evidence of trouble on various fronts – a housing bubble in many countries (the Economist had a major story on it in June 2005 and as readers well know, prices rose at an accelerating pace), rising levels of consumer debt, stagnant average worker wages, lack of corporate investment, a gaping US trade deficit, insanely low spreads for risky credits — the authorities took the "everything is for the best in this best of all possible worlds" posture until the wheels started coming off. And even when they did, the vast majority were constitutionally unable to call its trajectory.


…there appears to be an extraordinary lack of introspection within the discipline despite having presided over a Katrina-like failure.

Orthodox economics — a declining research program?

No comments: