Yes, blame the economists:
What we are witnessing, in the broadest sense, is the bankruptcy of
modern economics. Its conceit has been that we had solved the problem
of stability. Oh, there would be periodic recessions, but the prospects
of a major economic collapse were negligible because we knew how the
system worked and could take precautionary steps to prevent it. What’s
been so unsettling about the present crisis is that it has not
conformed to the standard model of business cycles and has not
submitted to familiar textbook solutions ..
The word that best epitomizes mainstream “macroeconomics” .. is demand.
If weak demand left the economy in a slump, government could rectify
the situation by stimulating more demand through tax cuts, higher
spending or lower interest rates. If excess demand created inflation,
government could suppress it by cutting demand through more taxes, less
spending or higher interest rates.
Economists of this tradition watch consumer and business behavior.
Are car sales soft? How much are companies raising prices? What about
profits? The $152 billion “stimulus” program earlier this year was a
classic exercise in “demand management.” It didn’t work well mainly
because this crisis originated in frightened financial markets. Massive
losses on mortgage-related securities caused some financial
institutions to fail. As fear spread, financial institutions grew wary
of dealing with each other because no one knew who was solvent and who
I’m guessing that Robert Samuelson isn’t aware that Hayekian economics — an economics which is NOT epitmized by “demand” — has not failed us, and in fact not only anticipated the current crisis, but explains artificial booms as creators of financial crises.
A lot more could be said about the failures of modern economics, and the explanatory successes of Hayekian economics in the current period. But what is most troubling about the failed discipline of economics is that none of this will or can do anything to change the entrenched sociological system which rigidly locks economics into a mathematical pseudo-science which priviledges easy to grade 4th rate math constructions — along with easy to evaluate “I’m smart” exercises in career making via 4th rate mathematical publications and dissertations.
The truth needs to be told about economics, but count on the mainstream economists not to tell it — or even to acknowledge their titanic scientific failure.
Titanic. Looks like I’ve inadvertantly run into exactly the right word there.
BONUS: Friedrich Hayek’s classic take down of modern macroeconomics, his Nobel Prize address “The Pretence of Knowledge”.