

What went wrong with economics - danh
http://www.economist.com/opinion/displayStory.cfm?story_id=14031376&source=hptextfeature

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voisine
Nothing went wrong with economics. The austrian school of economics predicted
the great depression, the economic failure of communism, the '01 nasdaq crash,
and the recent housing bubble. If you keep looking to the keynsians after the
stagflation of the 70's completely refuted the core tenant of their entire
economic view, well, you've got no one to blame but yourself.

~~~
philwelch
Economics isn't not a battle between Keynes and the Austrians, though. There
are numerous neoclassical schools with varying degrees of prominence.
Greenspan, for instance, was a monetarist, not a Keynesian. Other fields
include behavioral economics. Meanwhile, while the early Austrian School
provided a lot of important insights, most of them have been accepted by the
neoclassicals.

Most of "Austrian economics" today is merely an apologia for anarcho-
capitalism, popular among libertarians who have studied the early Austrians,
lack grounding in economics otherwise, and are more interested in
rationalizing libertarian economic policies than honestly learning economics.

~~~
kirubakaran
Are there some interesting engaging books that I can read to honestly learn
about economics without having to pick a side or hold political beliefs?
(something that will be really useful for me to understand the world better...
not something that will attempt to convert me...)

~~~
davidw
This textbook is free on line, and as far as I can tell is fairly "standard"
economics:

<http://www.introecon.com/>

One that is very relevant to our field is "Information Rules" by Varian and
Shapiro. I can't recommend it enough.

Definitely look for standard stuff and get that figured out before you go
looking at mises.org or marxist.org or whatever. Those guys definitely have an
Agenda with a capital A. It's difficult to separate economics and politics
completely (which is why I flagged this too), and it's a guarantee that
someone will start hauling out all the mises and Austrian links on any given
thread on the subject here.

In other words, learn enough to reason on the subject for yourself, rather
than joining some sort of echo chamber. The best place to do that is with
what's considered the "state of the art" by mainstream practitioners. Maybe
they're wrong, and Marx or Mises is right, but it's certainly the best
starting point.

~~~
tc
You're basically suggesting that people learn the current fashions. Which is
fine, as far as it goes, just stay skeptical, because unlearning falsehoods is
extremely difficult for most people. Empirically speaking, it seems almost
(but not absolutely) impossible for humans.

People should learn economics like you learn physics [1]. You don't start out
with string theory (fortunately). You start with the Greeks, then move to
Galileo, Euler, Newton, Laplace, Maxwell, Bohr, Einstein, Feynman, etc.

In macro economics, that might read: Bastiat, Locke, Smith, Mill, Malthus,
Marx, Engels, Mussolini (who would typically be expunged, despite his
continuing relevance, for obvious political reasons), Mises, Keynes, Hayek,
Friedman, Rothbard.

[1] There are obvious differences, of course. Economics has more forks and
fewer merges in the tree of thought (which makes knowing the history all the
more important). And unlike physics, old, discredited theories get dug back
up, polished, and repeated for a new generation (how many times do we have to
endure CNN talking about how a hurricane will help the economy before people
understand the broken window fallacy that Bastiat articulated in _1850_?). And
economics also overlaps with both politics and morality. Value-free economics
exists only if you consider "you could do X, but more people will starve" to
be a value-free argument.

~~~
philwelch
I took some intro physics courses in college. We didn't take a historical
approach: we just started with the most recently well-understood Newtonian
framework, and then moved onto EM where we worked our way up to Maxwell's
equations. We never touched the Greeks--in fact, there's no point studying any
pre-Newtonian physics unless you're a scientific historian, because Newton had
the first usable theory. And even then you learn it using a jumble of
Newtonian and Leibnizian calculus!

In economics, we started with things everyone agreed on (supply and demand
curves) and moved onto some facts about how centrally-banked currencies work
(what the FED does, what M1, M2, and M3 are, what fractional reserve banking
is). It's the upper level classes in econ, and the graduate classes in
physics, where you really get into the controversial bits. But there's a lot
of econ to learn before you get into anything that's controversial among
economists (though the common beliefs of economists may be quite controversial
among laypeople!)

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asdlfj2sd33
I'm not sure anything is broken, we just had plain old regulatory capture.

Greenspan himself admitted he thought that people would protect their own self
interest. But those people get bonuses if their risks pay off and have no real
downside if they lose. They are gambling with other people's money, not their
own money.

And it's not as if self interest and lack of government bailouts prevent the
Dutch tulip bubble, or any other speculative bubble.

~~~
tc
... but it did prevent the speculative losses from being socialized while
keeping gains private. Only people who bought tulips lost money.

It's also widely thought today that the tulip mania was brought on in part by
a parliamentary decree that weakened contractual protections on tulip
contracts -- making it easy to speculate on inflated tulip prices without a
correspondingly strong fear of loss.

There is also a strong case to be made that, similar to the current situation,
the tulip mania was prompted or sustained by a sudden increase in the monetary
base. Apparently the balance sheet of the Bank of Amsterdam was surging during
this period.

~~~
redcap
Out of interest, do you have a link or source for your last comment regarding
the Bank of Amsterdam?

~~~
tc
No, it was from memory. But fortunately Wikipedia cites its sources:

<http://en.wikipedia.org/wiki/Tulip_Mania>

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gaika
Same happened before with chemestry / alchemy and astronomy / astrology -
there were alchemists that were trying to please their king with promises of
gold out of nothing or horoscopes, and there were scientists, that used it as
a source of funding for their real research. Chemistry and Astronomy won,
unfortunately our economic alchemy refuses to die.

~~~
redcap
But of course, with the current financial system it looks as though large
financial companies have managed to create wealth out of nothing or
horoscopes.

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timwiseman
This article is remarkably well balanced and correctly points out that both
those who previously blindly followed economicists and those who blindly
ignore them now are wrong. The truth of course is in between.

Economics is both a comparitively young science (at least in terms of when it
was formalized) and one that deals with (or is influenced by) a very
unpedictable factor, human actions. It gets many things right, and some things
wrong. With time, it will be refined though by its nature it is likely to
never reach the rigour and predictive power of some of the hard sciences such
as physics.

This current upset is rightly forcing a reevaluation of many beliefs, but when
the dust finally settles in the future, economics will emerge stronger and
more accurate than before.

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teilo
But does that mean that Keynsianism is going to die? Not a chance. Keynsians
control the entire monetary system. It does not matter how often their
theories are debunked by history itself. They are the ones in power, and so
they will continue to do what they do best: Rob from the poor and give to the
rich through the hidden tax of inflation born of deficit spending and the
centralized control of interest rates.

~~~
padmanabhan01
and by printing currency out of thin air.

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chinfuilan
I got hold of the article rather accidentally and was attracted by it.
Somehow, it was then put aside due to some preoccupation but it keeps
returning and flashing to me like owl’s-carrying-letters sent in to Harry
Potter, demanding my involvement to perhaps save the world. Yes, the world is
in big trouble and economists can’t help due to perhaps lack of genes and
consequentially severe loss of sights.

“What went wrong with economics” is: Economics lacks at least one fundamental
foundation. Installing this fundamental will elevate Economics to another
platform.

What is this fundamental? It is something that sciences cling on tightly, but
economics does not. So, economics has departed from this fundamental, perhaps
unconsciously.

What is it then? It is the Fundamental Axiom or Law of Causality, simply
means: Cause gives rise to Effect, In = Out, Debit = Credit, a Source for
every Outcome, etc which are common senses or self-evident truths.

Tell us in what way the Economics runs away from this fundamental? If you ask:
You win, I win, everyone wins, who then is the loser or provider of wealth?
Most of economists will tell you that there is no loser. The Economics
textbooks also say so. But it cannot be no loser, as it violates the
fundamental Law of Causality. So, we must insist for the presence of loser, as
dictated by the Fundamental Law of Causality.

On this insistence, one great researcher by the name of HNM had successfully
uncovered the identity of the loser and the mask of wealth after an effort of
several decades. Needless to say, he has restored the Fundamental Law of
Causality back to the economics and make it a strong and real science. Using
his new theory, all events in the past or present could be explained with
ease, and that it could predict and even provide future policies and
directions for our world.

If you are really interested to find out more, please write to me via my
email: chinfuilan@yahoo.com

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mhartl
Let's check the index:

    
    
      What went wrong with economics. See Keynes, John Maynard

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known
<http://en.wikipedia.org/wiki/Information_asymmetry> has played its role in
economic depression.

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monological
greed

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lyudmil
I am a little baffled by the article's thesis. There is very little evidence
to support a "failure" of economics in the case of this current crisis.
Several economists (mainly Dean Baker) were able to see the housing bubble and
to accurately predict that its burst would lead to a recession.

I suspect the real failure being discussed in the article is the belief many
at the Fed (especially Greenspan) had in self-regulating markets. Good
arguments have been made that the lack of regulation was a major factor in
creating the bubble-prone economy the US has had for 15 years (or more). So
yes, in that respect, the "economic models" have failed.

In reality, most of this was completely predictable and avoidable. I would
again point people to Dean Baker as a great resource in understanding the
crisis: <http://www.youtube.com/watch?v=CrSrL0lBorE>

