Conformity is so important to economic thinking—NOT

Well, surprise, surprise, surprise (as Gomer Pyle would say).  The Initiative on Global Markets took a poll of academic economists and gloriorski, they took the exact same position—all of them—that the Fed itself would.  Now here's the "ironic" part—one of the questions was whether the Federal Reserve should be audited—a political position that has drawn growing support in Washington in the past few years.  The support comes from seeming opposites such as Rand Paul and Bernie Sanders.  The Fed is opposed to an audit because they believe—probably correctly—that if their workings were exposed to the light of day, all sorts of bad things would happen to them including a loss of their ability to act independently from political demands. (The horror.)

Now anyone remotely interested in how the economy is doing should just leap at the chance see the Fed's books.  The Fed is an important actor in the economy so it's kind of hard to say anything meaningful about economics without good information on what they are doing.  So here we have it—a bunch of top-flight economists have decided that their "scientific" discipline doesn't actually need key data.  So they are not scientists at all—but rather shills for a narrow point of view on monetary policy.  And like the faithful acolytes they are, all of them without exception have toed the Fed's line.  (Cue Gomer)

ECONOMICS PROFESSORS AGREE: The Fed Shouldn't Be Audited And The Economy Needs More QE

MATTHEW BOESLER NOV. 6, 2013

A majority of academic economists believe that (a) auditing the Fed is a bad idea and (b) tapering down the Fed's quantitative easing program is also a bad idea, according to a survey conducted by the Initiative on Global Markets:


more

This little gem is especially interesting.  German economists, almost without exception, have been good little neoliberals for at least a generation.  And Deutsche Welle, where the following was found has been unquestioning in its neoliberal bias ever since I first started watching it in the 1990s.  And yet...

It seems like some young German economists have discovered how crazy and unpredictable neoliberal economics actually is.  In the process, they are rediscovering heterodox economics.  Which only makes historical sense.  After all, it was the great German-American economist Friedrich List who is most certainly an intellectual grandfather of heterodox economics in the first place.

Reading the crystal ball: Economics faces credibility crisis

Date 04.11.2013
Author Rolf Wenkel / uhe

Current economic forecasts expect the German economy to grow at 1.8 percent next year. It's an estimate some economists say is complete nonsense, one based on outdated models out of touch with the real world.

Ever since the outbreak of the global economic and financial crisis in 2008, economists around the world have been facing the stern question of why they haven't been able to warn politicians and the public alike of the doom unfolding.

In the absence of any satisfactory answer, some economists such as Frank Riedel have begun to question the model on which economics bases its assumptions and predictions.

Current economic models were failing reality, the director of the Center for Mathematical Economics in Bielefeld, wrote in his latest book titled “Blaming the Economists.” The message of his clear-cut analysis of the crisis is that economic predictions lack any scientific foundations.

Using Germany as an example, Riedel told DW that it was impossible to take the individual behavior of all of the country's about 40 million households and 2 million businesses into account when making predictions about the future. Therefore economists would resort to a representative model household and a model business for the undertaking. Using this as a vehicle, he said, was perhaps sufficient to take a philosophical look at economics, but completely inappropriate to calculate, for example, future economic growth.

The myth of ‘homo economicus'

At the centre of current economic models was the assumption that the decisions of all economic players were based on rational behavior, Riedel said. If humans were acting like "homo economicus" - as this type of ideal human being is denoted in economic science - stock markets would never crash, he added.

Moreover, financial markets were generally ignored in most mathematical and statistical equations on grounds that economists didn't consider them important for the real economy.

“If models ignore financial markets, they are unable to predict a financial crisis, which, in turn, will have an unpredictable effect on economic growth,” Riedel told DW.

Current economic developments were a striking example of how uncertainty about the banking sector and a lack of trust massively affected the flow of credit and investment, and subsequently growth in the labor and goods markets.

Figures don't count

The Professor of Economics also said he considered economic growth figures that give a number behind the decimal point as completely meaningless.

“Even the figure in front of the decimal point isn't worth much,” he said, adding that most economic forecasts often provide only a range of probability into which growth would fall.

“German economic growth next year is forecast to come in between 0.6 percent and 3 percent, which is an estimate that isn't exactly helpful,” he said.

Speaking in a similar vein is German economist and mutual fund manager Max Otte. In his book “The Crash is Coming” - published in 2006 - he predicted the outbreak of the global financial crisis.

Since World War II, the dogma of mathematics and a scholastic approach had gained supremacy in economics, he told DW.

“This will only change if economists pay more attention to sociological aspects and adopt a more holistic approach to society,” Otte said.

However, this school of thought, which was known as political economics, was largely ignored, showing that the entire scientific branch was heading down the wrong way.

“Economists still presume that the market will correct everything. But there is not a single market, there are many markets that work differently,” he said and added that modern-day economists had yet to pay respect to this, if they were to re-establish credibility in them. more