Tuesday, July 16, 2013

Why does anyone pay economists for their work?

Dean Baker looked at the state of economic debate and the accuracy of economists' predictions of economic performance and asked a very important question: "why does anyone pay economists for their work?"

This is a very important question because leading up to and since the global financial crisis began on August 9, 2007, both the accuracy of their predictions of economic performance and their policy recommendations have been terrible. (This has also been true of economists with respect to Japan in the run-up and subsequent to its credit bubble bursting.)

Why has the economic profession's performance been so abysmal?

Your humble blogger's theory is that this performance reflects the fact that leading up to the financial crisis economic models effectively excluded the financial sector and subsequent to the financial crisis the economic models don't know how to handle the distortions caused by the excess debt in the financial system.

Mr. Baker points out the natural conclusion when one looks at this terrible performance:
This says everything anyone needs to know about the quality of economic debate. It is complete nonsense....
why don't we just save a few bucks and fire all the damn economists. 
Let's shut down the econ departments in universities, the Fed's research department, the I.M.F., the OECD. Let's get real, no one cares about economics....

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