Wednesday, November 04, 2009

The Hubris of Economics | The Big Picture

The Hubris of Economics | The Big Picture:

Barry Ritholtz
discussing a WSJ piece ( Crisis Compels Economists To Reach for New Paradigm.)

" 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"
He goes on to lay out many things that are wrong with the field (from politics, to over-reliance on assumptions, and over reliance on mathematical models, and good old fashioned over confidence.

Is he right? Unfortunately, yes. Maybe not completely, but to a degree he is.
How can it be that the political tilt of the so-called scientist influences the findings? How can basic assumptions (rationality and complete markets) be so often counter to empirical fact?

But in defense of the field, most economists I know always admit up front that the models are just that, models. Those that placed too much reliance in the models are nearly as much to blame.

I would definitely recommend reading the entire thing. While I am not in total agreement (possibly due to my own biases), he is pretty close to the truth which is very troubling.

Sidenote: Do I see an essay coming? Students, you have been warned ;)

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