The economists who dominate today turn finance questions into numbers exercises. There’s nothing wrong with looking at the numbers; they comprise a legitimate part of the story. But they can never be the entire story or even half of it. Leave out half of what you need to analyze to get things right and you get things terribly, terribly wrong.

I believe that the biggest problems today are institutional. Behavioral Finance turns most of the conventional wisdom on its head. Today’s Big Shots are threatened by new insights. They are embarrassed to have been discovered to have been so wrong about so much.

The economic crisis is going to force some questions to the table that for a long time have been improperly ignored.

Rob

At any time regardless of the economy you can ALWAYS find an economist somewhere claiming the end if just around the corner.

Back in the 80’s I recall seeing dozens of books in B&N entitled things like “The Great Depression of the 1990s” and similar. That didn’t happen.

Even in the 90’s these bokks were dusted off and retitled “Great Depression of 2000″. Even with this drop (which took 8 years after the turn of the century) we aren’t anywhere near 1929.

Always some one claiming doom&gloom.

ps- Regarding economists over pols, while in general I agree, don’t get too comfy. I’ve read supposedly “expert” economists who actually *favor* CRUSHING taxes as an *incentive* to make people work harder and be more productive!! :-O

There were economists who had significant portions of what would happen pegged. Mark Thornton was one of them: http://mises.org/story/1533 is an article he wrote in 2004 decrying the housing bubble, noting in his penultimate paragraph, “Given the government’s encouragement of lax lending practices, home prices could crash, bankruptcies would increase, and financial companies, including the government-sponsored mortgage companies, might require another taxpayer bailout.”

The problem with government economists isn’t their competence, in the sense that some other group of economists (or laymen) would have done a much better job managing things. Rather, the problem is in what people–including government economists–expect economists to do. With this, you get one of two ideas: either the person who predicts stock market movements (which economists, frankly, cannot do, and most gladly tell people they cannot do) or an Alan Greenspan or Ben Bernanke pulling the strings and coordinating everything so all of our decisions end up working out. This is FA Hayek’s “fatal conceit” in action: the idea that some individual or group of individuals has the ability to collect, aggregate, interpret, and disseminate the ridiculously large number of facts necessary for the coordination of human actions. There are economists who understand the impossibility of this and note that the extent of economic “management” should be the installation of a good, slowly evolving set of generic, abstract rules which limit action at the boundaries (e.g., prevention of theft, potentially setting up welfare for certain groups of individuals, etc.) but not directly written for any particular circumstance or individual/set of individuals. These economists generally do not end up in government positions because they don’t want to waste their time and they can’t give politicians what they want–intellectual cover to implement their own ideas or pad the wallets of favored constituencies. Unfortunately, this leaves the economists who do believe in government coordination of markets, or those who believe that they can “guide the economy” in ways favorable to individuals, like Alan Greenspan attempted. Even more unfortunately, these individuals also work within political constraints, even at the nominally free Federal Reserve (over on my blog, I tend to make a regular point of noting that the Federal Reserve is not an independent institution and has lost some level of its previous independence–to the extent that it was–over the past several years). This constrains their actions and leads to a tendency for Federal Reserve chairmen to drop interest rates and ride the booms, and that inevitably leads to the busts.

To answer your final question, nobody should be “at the wheel.” I would say that, in an ideal world, politicians would be elected to set certain rules that a) pass popular muster and b) are good for long-run growth. After that point, the legislature should step out of day-to-day dealings of economic entities, and the executive and judiciary should be limited to acting within the general rules. The entire notion of having “a wheel” to be at is the problem, not the “driver.” I’d much rather have Ben Bernanke and Hank Paulson/Tim Geithner “at the wheel” than Chris Dodd and Barney Frank or a pair of bureaucrats or regulators, as at least Bernanke and Geithner have an idea of what they’re trying to do (even though they’re doing a rather poor job of elaborating on that idea or being consistent). The problem, though, is that they can’t do what they’re trying to do–it’s just not possible for anyone.

Wish I had $1.00 for every time I [foolishly] listened to “expert” advise and either lost money or didn’t make what I could have.

Citibank at $.96/share anyone?

Why does every “expert” willing to give a quote have a book out there?