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If Economists Fail, Don't Blame Economics

...don't give up on economics

By Kevin Spak, Newser Staff

Posted Jul 17, 2009 2:29 PM CDT

(Newser) – Economists have made some disastrous calls recently, but that doesn’t mean you should give up on economics, opines an editorial in the Economist. True, too few economists predicted the financial crisis, but the current backlash, which assumes that the dismal science is basically useless, has gone too far. “Economics is less a slavish creed than a prism through which to understand the world,” write the magazine's editors. Here’s how it all went wrong:

Apart from general complacency about asset bubbles, economists missed the signs because they were stuck in their own silos. Financial economists simply didn’t think about illiquidity or counterparty risk. Macroeconomists, meanwhile, believed capital markets work perfectly—which, we now know all too well, they don’t. Now war has broken out again between Keynsians and purists, but under the cacophony, new theories are forming. It’s time to fix economics, not scrap it.

[Images (1)]

[Quotes (2)]

Economists worried too much about inflation, and not enough about asset bubbles. (Shutterstock)

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No economic theory suggests you should value mortgage derivatives on the basis that house prices would
always rise. - The Economist

In the end economists are social scientists, trying to understand the real world. And the financial crisis has changed that world. - The Economist

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COMMENTS

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Showing 3 of 7 comments

nick

Jul 19, 2009 1:23 AM CDT

The Federal Reserve is bad and un-necessary? Care to elaborate?

Snarfeh

Jul 18, 2009 2:55 AM CDT

It's typical for unemployment to take longer to rebound. There were people losing jobs in May for the loss of business their companies experienced in the prior 6-8 months. The company from which I was laid off in early May struggled through the first quarter of this year until finally sputtering to a halt in late April. Nothing is instantaneous except Cheney's shotgun..

nick

Jul 18, 2009 1:24 AM CDT

Advice to naysayers: Criticize the (policies of the) President who cased-- over an 8 year period-- the world-wide economic meltdown .... not the (policies of the) President who-- for 5 months-- has been trying to fix it. You criticism defies logic.

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If Economists Fail, Don't Blame Economics