Getting it WRONG #5

The economics profession has been utterly discredited.  Having only 10-20 out of 40,000 practitioners able to point at predictions of the latest global economic catastrophe is nothing to be proud of.  Imagine if only 15 medical doctors out of 40,000 were able to diagnose pneumonia and you have some idea of the scope of the problem.  The problems with the economic profession are deep, systemic, and fatal to the rest of us.  It is bad enough that our policy-makers have such dismal folks to lean on for advice.  What makes it fatal is that the most wrong-headed and arrogant of the keepers of the dismal science are often the ones who are listened to because they are the loudest and most simplistic.

Anyway, I have my own catalog of reasons why the economics profession has spun off into cloud cookooland.  But here is another's list.

The Hubris of Economics

By Barry Ritholtz - November 4th, 2009, 8:30AM

On Tuesday, the 2nd most emailed article on WSJ.com was Crisis Compels Economists To Reach for New Paradigm.

It is an intriguing look at the problems of the the field of economics. It went, however, way too easy on both the profession and its practitioners. The article fails to ask some very basic questions about the soft science, and does not discuss the fundamental incompetency of many economists.

Given the failures of the profession — failing to anticipate the worst recession in decades, missing the warping effect of the housing boom, not recognizing the credit collapse until too late — a damning indictment of the dismal science might have been more appropriate.

Perhaps I can be of assistance.

There are many areas I would have liked to see the Economics Crisis article explore: The lack of Scientific Method, the mostly awful performance of economists, its misunderstanding of the value of modeling, the bias inherent in Wall Street variant of economics, and lastly, the corruption of economics by politics. I will just touch on some of these; you can fill in much of the blanks yourself.

Let’s start with the basics. Hard “science” — Physics, Biology, Chemistry, and all variants thereto — begins humbly. They try to describe the universe around us by creating theories, and then testing them. These theorems are always preliminary. Even when testing validates them, Science is always prepared — even eager — to replace them with newer theories that are proven to be even more valid. more