06 February 2009

Flawed Economics

Two interesting articles on the failure of convention economics.

Wanted: A new economic theory discusses real estate cycles as a the cause of recessions and concludes "that until radical economists learn to focus on practical outcomes instead of trying to change human nature, and traditional economists fully accept and develop theories around the work of regulatory economists, and we learn that we can't all quit our day jobs to become property developers, it will all be forgotten as before, until next time."

Economists are the forgotten guilty men claims that bankers and regulators ("practical men") were "blinded with science” by academic economists' theories but didn't realise that these theories were flawed: "the risk management consultants who told them their banks would face no solvency problems and the economists who advised them that financial markets were always right were basing their analyses on two theories that were catastrophically wrong. These two theories - called “rational expectations” and “the efficient market hypothesis” - essentially assume that the economy is a predictable, comprehensible machine with a defined set of instructions."

For me Steve Keen makes a lot more sense.

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