Monday, February 22, 2010

So stupid! (amv)

A bunch of offended third-class economists of the heterodox tribe created a "Dynamite Prize in Economics". The prize is awarded to the three economists mostly responsible for the GFC. The voting process seemed to give frustrated low- and lowest-rank economists the opportunity to reach out and slap striving "mainstream" economists. It's all about some psychological relief. These guys do not understand a most basic issue: complex phenomena like 'the economy' may go astray without someone being 'guilty'. Searching for a scapegoat in the aftermath of financial turmoil has some forefathers in history. Last time, the mob 'awarded' Jews. God bless, nobody will listen. This is so, because we do not experience a Great Depression  - just a Great Recession. Thus the opportunity cost of witch-burning is simply to high for most people: they still have perspectives. And to whom do we owe this? If we have to single out an economist for his impact on society than it is indeed Milton Friedman who together with Anna Schwartz convinced us to have an eye on the money supply and  the banking system and keep aggregate demand on track if the latter is stress-tested.

In general, however, economics is concerned with anonymous processes. We talk about interdependent systems and their motion in time. No single individual is 'most responsible' for economic crisis as is no single individual 'most responsible' for bad weather. In contrast, European heterodoxy obviously still believes that the earth is flat and center of the universe. And if something happens, than someone did it! God makes the sun rise and fall. Neoclassical economists make the economy rise and fall. It's that simple. However, I bet Greenspan and Summers remain unimpressed. And rightly so. The quality of the heterodox reasoning speaks for itself:

Alan Greenspan has been judged the economist most responsible for causing the Global Financial Crisis. He and 2nd and 3rd place finishers Milton Friedman and Larry Summers, have won the first–and hopefully last—Dynamite Prize in Economics.
They have been judged to be the three economists most responsible for the Global Financial Crisis. More figuratively, they are the three economists most responsible for blowing up the global economy.
Most than 7,500 people voted—most of whom were economists themselves from the 11,000 subscribers to the real-world economics review. With a maximum of three votes per voter, a total of 18,531 votes were cast. The poll was conducted by PollDaddy. Cookies were used to prevent repeat voting.

Dynamite Prize Citations

Alan Greenspan (5,061 votes): As Chairman of the Federal Reserve System from 1987 to 2006, Alan Greenspan both led the over expansion of money and credit that created the bubble that burst and aggressively promoted the view that financial markets are naturally efficient and in no need of regulation.

Milton Friedman (3,349 votes): Friedman propagated the delusion, through his misunderstanding of the scientific method, that an economy can be accurately modeled using counterfactual propositions about its nature. This, together with his simplistic model of money, encouraged the development of fantasy-based theories of economics and finance that facilitated the Global Financial Collapse.

Larry Summers (3,023 votes): As US Secretary of the Treasury (formerly an economist at Harvard and the World Bank), Summers worked successfully for the repeal of the Glass-Steagall Act, which since the Great Crash of 1929 had kept deposit banking separate from casino banking. He also helped Greenspan and Wall Street torpedo efforts to regulate derivatives.

The vote totals for the other finalists were:

Fischer Black and Myron Scholes 2,016
Eugene Fama 1,668
Paul Samuelson 1,291
Robert Lucas 912
Richard Portes 433
Edward Prescott and Finn E. Kydland 403
Assar Lindbeck 375

This blog established the prize in response to attempts by economists to evade responsibility for the crisis by calling it an unpredictable, “Black Swan” event. In reality, the public perception that economic theories and policies helped cause the crisis is correct.

This part I like most; it's on good vs. evil: But of course not all economists are to blame. Thus, some are. Guess who: It is the delusional mindset of ‘neoclassical’ economists that caused the GFC. I repeat: "that caused"! Sic! Anghhhhh. There are realist approaches to economics but which through power politics have been suppressed in universities and excluded from government policy making.

Some practitioners of these other approaches did what neoclassical economists falsely claimed was impossible: they foresaw the Global Financial Crisis and warned the public of its approach. In their honour, this blog now calls for nominations for the inaugural Revere Award in Economics, named in honour of Paul Revere and his famous ride. It will be awarded to the 3 economists who saw the GFC coming, and whose work is most likely to prevent another GFC in the future.”