In an article in the Washington Post Economist Robert Samuelson postulates why the economists missed forecasting the enormous crash we are in.
Samuelson draws three conclusions:
1. It was not political bias. It was missed by liberal and conservative economists, Democrats as well as Republicans.
2. Modern economics focuses too much on theories about transactions of goods and services and pays relatively little attention to financial markets, which was the decisive factor in this crash.
3. The biggest blunder may have been ignoring history.
Read the entire article (brief) here.
Economists Out to Lunch
by Robert Samuelson
July 6, 2009
Excerpt:
History is messy and constantly changing, as Ferguson reminds us. It flows from institutions, technologies, laws, cultural and religious values, governments, popular beliefs, and much more. Model-building and theorizing can sometimes simplify the real world in ways that provide insights. But often, the models’ assumptions depart so radically from reality that the conclusions become useless. Someone who studies history becomes humble in the face of the ceaseless changes and capricious mixing of motives.
Economists thought they had solved the problem of economic stability. Their tools sufficed to prevent widespread economic collapse, even if they couldn’t control every twist in the business cycle. This conceit may have once been true. No more. Markets became more complex; more money crossed national borders; people became complacent. History moved on, but economists didn’t.
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