Monday, January 05, 2009

The Economists Take a Beating

Two different bloggers slam the Economists this morning. Here's Ritholtz:

Why did Economists, as a group, miss the warning signs of housing, credit and market crisis?

...several professional Economists got it right; Academics like Nouriel Roubini of NYU and Robert Shiller of Yale, as well as a few Wall Streeters, such as David Rosenberg of Merrill Lynch and Paul Kasriel of Northern Trust. Too many bloggers to name also got it right. Meanwhile, the vast majority of professional economists, strategists and analysts — the “Herd” — totally missed it.

BigPic has a list of reasons, all of which are.....reasonable.

Here's VoxDay, in the midst of a critique of "Free Trade" theory: is becoming ever more clear that the foundational assumptions of economics, based as they are on the concept of a rational homo economicus, are incorrect. An increasing number of studies are showing that the basic model of man as a rational consumer capable of reliably acting in accordance with his objectively calculated economic benefit is not only the gross oversimplification that it was always known to be, but may in fact be altogether incorrect. This is significant, because if the foundations of the theories upon which the huge and complex macroeconomic models are constructed are flawed, those models are rendered effectively useless.

Ritholtz mentions the 'error of homo economicus' as number 6 in his list.

The presumption of rational behavior is erroneous, indeed.

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