Markets are as unstable as during any point in American history -- and a select few have found a way to capitalize
Paul Krugman This piece originally appeared in The New Inquiry.
A year after Lehman Brothers collapsed, Paul Krugman took his fellow economists to task over a host of professional and intellectual failures. With the New York Times as his pulpit, he began his omniscient narration: “The central cause of the profession’s failure was the desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess. Unfortunately, this romanticized and sanitized vision of the economy led most economists to ignore all the things that can go wrong,” he wrote. “They turned a blind eye to the limitations of human rationality… to the problems of institutions that run amok; to the imperfections of markets… and to the dangers created when regulators don’t believe in regulation.”And from ZeroHedge:
Despite this indictment, economists have not only retained their prominence in the years since the global financial crisis; they have expanded it. Media-savvy economists have only grown in number, disseminating nuggets of user-friendly economic theory and technocratic liberalism in newspaper columns, blogs, and econo-centric podcasts. Krugman, along with Joseph Stiglitz, Nouriel Roubini, Nassim Taleb, and Jeffrey Sachs have become household names as swaggering political pundits.
As economists’ profile has risen, the media attention toward them has changed. A recent Times profile on economists Justin Wolfers and Betsey Stevenson, “Economics of Family Life, as Taught by a Power Couple,” illustrates the media’s growing tendency to treat select economists as celebrities. “Mr. Wolfers,” we learn, “looks like a nerdy surfer and tends to pull his chin-length blond hair into a ponytail,” while “Ms. Stevenson has an irresistible laugh and a stylish taste in clothes and shoes.” For this Business Section article, Rich gushes over the couple’s fondness for interior design in prose more reminiscent of Monocle than the New York Times, cooing over the couple’s “glass-top Noguchi coffee table” and “white Jonathan Adler casting couch covered in a sheepskin throw from Costco.”
At a time when much of the world is mired by recession, and unemployment is hitting record highs, it’s not surprising that we’d want a way to make sense of it all. How does one explain the global financial crisis? How do we comprehend the illegal, risk-taking behavior of banks like Barclays, HSBC, JP Morgan, or Standard Chartered? Economists are not afraid to promise answers to these questions.
But why are economists, once thought to be humorless practitioners of the “dismal science” suddenly becoming celebrities? Since when did they become gurus to whom ordinary people can turn to for everyday-life advice?
One of the virtues of pop economics is that it refuses the dismal tag. Fun and inclusiveness figure heavily. The reader gains access to an exclusive vernacular; one begins to scratch the surface of the U.S.’s current economic woes, or Europe’s. But the rudimentary grasp of economic theory it allows for is divorced from history, politics, and endemic institutional dysfunction.
With economists becoming mainstream personalities, their econospeak is worming its way deeper into everyday language. Our money is as easily invested as our time: remember to “calculate” your “opportunity cost.” Emotions are “inefficient”: try not to have any. Choosing a restaurant necessarily invokes a “cost-benefit analysis.” Steering the course of one’s life is necessarily about making the right decisions at the right time. And the time for this linguistic evolution is right. In an age of laissez-faire capitalism and precarious labor, what are individuals and corporations doing, if not constantly “re-establishing themselves” as “market players?”...MORE
Guest Post: The Mathematicization Of Economics
If one thing has changed in the last one hundred years in economics it has been the huge outgrowth in the usage of mathematics:
This is largely a bad development, for a number of reasons.
First of all layers of mathematics acts as a barrier to public understanding. While mathematics is a useful language for communicating complex ideas, those without training in mathematics will struggle to grasp what an author is trying to communicate if a paper consists mostly of equations untranslated into English. This is bad practice; it is easier to baffle with bullshit in an unfamiliar language than it is in plain English.
Second, mathematical models are always simplifications. Human action and economic behaviour is complex and unpredictable. While mathematical models can sometimes approximate a pattern quite well and so have some limited uses as toys, the complexity of human behaviour means that there are always unmodelled variables that can throw off a model’s output. Over-reliance upon or excessive faith in mathematical models can lead to bad forecasting and bad policy decisions. The grand theoretical-mathematical approach to economics is fundamentally flawed....MORE
