Anatole Kaletsky indicts the modern economist profession for the current crisis in the Prospect:
Was Adam Smith an economist? Was Keynes, Ricardo or Schumpeter? By the standards of today’s academic economists, the answer is no. Smith, Ricardo and Keynes produced no mathematical models. Their work lacked the “analytical rigour” and precise deductive logic demanded by modern economics…. If any of these giants of economics applied for a university job today, they would be rejected. As for their written work, it would not have a chance of acceptance in the Economic Journal or American Economic Review….
….The truth is even worse than this rhetorical question suggests: not only have economists, as a profession, failed to guide the world out of the crisis, they were also primarily responsible for leading us into it.
via Features: ‘Goodbye, homo economicus’ by Anatole Kaletsky | Prospect Magazine April 2009 issue 157.
I have long shared held the views expressed by Kaletsky. Perhaps that’s why I’m not in some research school and writing in the major Econ journals. Alas, it appears that economists (the current reigning crop of “leading mainstream academic economists” are rather thin-skinned. Kaletsky’s critique was generally not well received by the PTB in the profession. Witness Mark Thoma and more Thoma and yet more Thoma and Krugman. Methinks they doth protest too much. They take great offense at the Kaletsky’s supposed attack on “math”, when in fact Kaletsky is attacking the methodology and thinking that limits itself only to math, that will not question assumptions, and then raises the math outcome to the status of “truth”. Economics left the study of the real economy and real people behind in the era 1950-1980. It fell into the grip of MMMM ( modern math model mania).
Some of my own thoughts and reactions to Thoma’s reaction to Kaletsky below the fold:
What I’ve been thinking for some time. Economics, particularly the mainstream analyses, has lost it’s way. The failures of the current crisis point out failures of economic advice and policy making. Those policies were based on models & theories that have a flawed methodology. The “positivist” methodology of economics and it’s accompanying physics envy dating from the mid-2oth century has led us astray.
Assumptions do matter and the realism of those assumptions matters, too. Highly recommend reading:
“The Financial crisis and systemic failure of economics” – Mark Thoma.
The Financial Crisis and the Systemic Failure of Academic Economics, by David Colander, Hans Föllmer, Armin Haas, Michael Goldberg, Katarina Juselius, Alan Kirman, and Thomas Lux: [From the conclusion] …”We believe that economics has been trapped in a sub-optimal equilibrium in which much of its research efforts are not directed towards the most prevalent needs of society. Paradoxically self-reinforcing feedback effects within the profession may have led to the dominance of a paradigm that has no solid methodological basis and whose empirical performance is, to say the least, modest. Defining away the most prevalent economic problems of modern economies and failing to communicate the limitations and assumptions of its popular models, the economics profession bears some responsibility for the current crisis. It has failed in its duty to society to provide as much insight as possible into the workings of the economy and in providing warnings about the tools it created. It has also been reluctant to emphasize the limitations of its analysis. We believe that the failure to even envisage the current problems of the worldwide financial system and the inability of standard macro and finance models to provide any insight into ongoing events make a strong case for a major reorientation in these areas and a reconsideration of their basic premises.”
via Economist’s View: The Austrian and Chicago Schools.
This is from History of Economic Thought: A Critical Perspective, by E.K. Hunt, a long out of print textbook I had when I was an undergraduate at CSU Chico [update: it is has been published again by M E Sharpe]. It explains how the “Austrian and Chicago schools reduce all human behavior to rational maximizing exchanges and hence are able to prove that in every respect, economic and non-economic, a free market, capitalist system is the best of all possible worlds,” and gives some of the critical reactions to that point of view:
The Austrian and Chicago Schools
The school of neoclassical economists that advocates extreme laissez-faire Capitalism represents the contemporary counterparts of Senior and Bastiat. In a sense this group really represents two separate but similar schools – the Austrian School and the Chicago School. The Austrian School traces its lineage directly back to Carl Menger (Chapter Eleven), Menger’s extreme methodological individualism is the basis of the social philosophy of the Austrian School.
While Menger’s first generation of disciples included both social reformers and conservatives, the ultraconservative nature of the Austrian School is more properly thought of as the product of two of Menger’s second-generation disciples, Ludwig von Mises and Friedrich A. Hayek. Both von Mises and Hayek taught at various times at the University of Chicago. Together with Frank H. Knight, who taught for many years at the University of Chicago, they were the most important influences in the formation of the Chicago School. For the past generation, Milton Friedman has been the most influential member of the Chicago School. In 1976, Friedman was awarded the Nobel Prize in economics. Continue reading