Predator Economics at their worst

Outsiders are usually astonished at the things economists actually believe.  In this respect (among MANY others) economics is so similar to religious practice it actually frightens this old preacher's kid at times.  When the Keynesians were displaced at my university, they were replaced by the Rational Expectations crowd.  I am so proud...NOT!

The Not-So-Rational Finance Companies

By: masaccio Wednesday February 17, 2010 2:25 pm 

There are many stupid things you have to believe if you want to be taken seriously on financial matters. One of them is called rational expectations theory. It and the efficient market hypothesis are two of the Chicago School’s economic theories that share the blame for the Great Crash of 2008. Both ideas depend on the quality of the information available to market players, and both fail when that information is rotten.

In his book, A Failure of Capitalism, and in an interview with John Cassidy in the January 11, 2010 New Yorker*, Judge Richard Posner soundly thwacks the true believers of the Chicago School. This is remarkable: Posner himself was a professor at the University of Chicago Law School, and is one of the founders of the law and economics movement, which he now espouses from the bench of the Seventh Circuit. Cassidy writes:

During our conversation, Posner questioned the entire methodology that Lucas and his colleagues pioneered. Its basic notions were the efficient-markets hypothesis, which says that the prices of stocks and other financial assets accurately reflect all the available information about economic fundamentals, and the rational-expectations theory, which posits that individuals and firms are hyper-intelligent decision-makers who have a correct model of the economy in their heads.

The rational expectations theory is described in more detail in Wikipedia:

Rational expectations is a theory in economics that the sum of all decisions of all individuals and organizations, filtered through an endogenous set of market institutions, is not systematically wrong. more