So Why are Economists Behind the Wheel?
This cover story in Business Week describes the battles that are now waging. I think the article is worth reading so here is a little taste:
Critics are scathing. Nassim Nicholas Taleb, the scholar of rare events who wrote Fooled by Randomness and The Black Swan, says: “We have to build a society that doesn’t depend on forecasts by idiotic economists.” Says Paul Wilmott, a quantitative finance expert: “Economists’ models are just awful. They completely forget how important the human element is.”
This recent piece on “voodoo economics” from NPR is also worth reading, including this expose of Nobel prize-winning economists:
Myron Scholes of Stanford University and Robert Merton of Harvard won the Nobel Prize for Economics in 1997. They were on the board of Long-Term Capital Management, a hedge fund that relied on models created by the academics. In 1998, the much ballyhooed fund went belly up — losing billions of dollars practically overnight and requiring a major bailout from banks and investment houses.
Here is my first question: With so many economists failing to predict the present recession and now disagreeing on how to fix things, can we really call any of them “experts?” I thought being an expert meant that you knew more than we did about the subject at hand. In this case, the subjects are “why you tanked my retirement plan” and “what are you going to do about it.” I’m still waiting for some good answers out of Washington.
The finance guys are disturbed that economics guys don’t give proper consideration to the operation and regulation of financial institutions and the housing markets. If you want some proof of that allegation, read this NPR piece on the complete failure of the $300 billion “Hope for Homeowners Act” that was passed last summer.
Thus, the Business Week article has these encouraging words for us:
Even now, progress is being made. Scholars of all stripes are belatedly getting up to speed in modern finance.
They are just now “getting up to speed?” The operation of our economy is kind of important, maybe worthy of “getting up to speed” before you start spending trillions of tax dollars.
This brings Mr. ToughMoneyLove to his last questions: Why are economists still in charge of driving our economic strategy? Haven’t they had enough opportunities to demonstrate the benefits of massive government intervention in the fine tradition of previous misguided economists?
We need to give all of our central planners a DWI test: Driving while incompetent. The problem may be that we don’t have anyone whom we can trust to write the test.
So who do you think should be behind the wheel?
Image credit: El Greg