Posted by PrestoPundit on 09/19/2008

They don’t have any idea what the hell just happened.  Harvard’s Dani Rodrik:

The financial crisis that has developed around subprime mortgages is so
so astounding in so many different ways that, like many others I
suppose, I am still having difficulty getting my mind around it.  The
whole thing is a big surprise for me.

So why are they surprised?  Why are they clueless?  Because they believe in an approach to economics which Friedrich Hayek correctly identified as pseudo-science over 50 years ago.  As Hayek points out, the mathematical constructions of the modern macroeconomists rule out by assumption the causal element which provides the explanation of the functioning and malfunctioning of the market — the judging and learning behavior of heterogeneous agents in the context of the time structure of production and consumption.

Note that among the possible explanation for the current bust, Rodrik fails to finger either interest rates set below their natural rate — or the scientific incompetence of the economists at the Federal Reserve and throughout government and Wall Street.


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