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You greatly underestimate the depth of the problem. Mainstream economic theory provably leads to economies that are unstable -- they don't converge to equilibr

You greatly underestimate the depth of the problem. Mainstream economic theory provably leads to economies that are unstable -- they don't converge to equilibrium, and in fact can end up arbitrarily far from equilibrium. This is not due to old or simple models, it is baked into current foundations. Keen makes fun of the assumptions economists use to avoid that instability -- more the representative agent assumption than unbounded rationality. The representative agent assumption is that all economic actors in the model behave exactly like each other, and like the theory predicts would be rational. Without that, the models would not converge. With that assumption, as Keen points out, we can simply delegate all economic decisions to a central planner. If this is a joke, it is one the economists are playing on us all the time.

roymurdock 11y ago
"Mainstream economics" moved away from convergence in the 1950s to the Solow-Swan exogenous growth models and more recently the controversial endogenous growth models such as the AK and the R&D models. They allow for differences in savings rates and human capital respectively that determine whether or not different economies will reach a steady state or converge with one another. But this is all academic fluff: I doubt anyone at the Fed is plugging data into any of these simple models that professors use to illustrate high level empirical trends ex post facto. Ultimately, your comment is much more concise and insightful than the post itself. You get to the heart of the matter: central planning vs. free markets. No organization can know enough about every variable that affects an economy to do a perfect job of governing it. On the other hand, without central planning there is little incentive to build infrastructure, protect borders, provide affordable education and healthcare, and create a place where people (excepting Ayn Rand) generally want to live. Could we have a better system? Probably. Almost everything in the world can be "improved" in one way or another depending on your viewpoint and agenda. But I think its a bit dramatic to hold the viewpoint that "the economists" (whoever they are) are playing a joke on us all the time. They're fallible humans playing their part in a fallible system just like you and me. It would have been great to see a careful consideration of the other side's viewpoint and a proposal for a better system rather than a short, click baity rant.
- jedharris 11y ago
  Thanks for the positive words about my comment. I have a lot of respect for economists who are deeply engaged with empirical research. My own problem is primarily with hard core "free market" theorists who lack humility and have an outsized role in promoting economic mythology. Keen paints with too broad a brush, but the people he describes do exist and do have way too much influence. Realistic ways of addressing most of the items on your list (infrastructure, education, healthcare, quality of life) are quite explicitly condemned by these theorists. This economic mythology depends heavily on ideas about optimality that don't survive the problems with Arrow Debreu, the limitations of representative agents, etc. The economic profession should be explicit about this. Every respectable economist should agree that (say) "We know free markets can't be generally relied on to produce good results. Government intervention is often required to avoid serious problems." That would help undermine the mythology. The American Economic Association (and others) should make some kind of official statement along these lines, and should reiterate it whenever the assumption that "the market is better" comes up in policy discussions. But for whatever reason mainstream economists typically want to avoid making explicit comments about the problems of "free markets".

roymurdock 11y ago

"Mainstream economics" moved away from convergence in the 1950s to the Solow-Swan exogenous growth models and more recently the controversial endogenous growth models such as the AK and the R&D models. They allow for differences in savings rates and human capital respectively that determine whether or not different economies will reach a steady state or converge with one another. But this is all academic fluff: I doubt anyone at the Fed is plugging data into any of these simple models that professors use to illustrate high level empirical trends ex post facto. Ultimately, your comment is much more concise and insightful than the post itself. You get to the heart of the matter: central planning vs. free markets. No organization can know enough about every variable that affects an economy to do a perfect job of governing it. On the other hand, without central planning there is little incentive to build infrastructure, protect borders, provide affordable education and healthcare, and create a place where people (excepting Ayn Rand) generally want to live. Could we have a better system? Probably. Almost everything in the world can be "improved" in one way or another depending on your viewpoint and agenda. But I think its a bit dramatic to hold the viewpoint that "the economists" (whoever they are) are playing a joke on us all the time. They're fallible humans playing their part in a fallible system just like you and me. It would have been great to see a careful consideration of the other side's viewpoint and a proposal for a better system rather than a short, click baity rant.

jedharris 11y ago
Thanks for the positive words about my comment. I have a lot of respect for economists who are deeply engaged with empirical research. My own problem is primarily with hard core "free market" theorists who lack humility and have an outsized role in promoting economic mythology. Keen paints with too broad a brush, but the people he describes do exist and do have way too much influence. Realistic ways of addressing most of the items on your list (infrastructure, education, healthcare, quality of life) are quite explicitly condemned by these theorists. This economic mythology depends heavily on ideas about optimality that don't survive the problems with Arrow Debreu, the limitations of representative agents, etc. The economic profession should be explicit about this. Every respectable economist should agree that (say) "We know free markets can't be generally relied on to produce good results. Government intervention is often required to avoid serious problems." That would help undermine the mythology. The American Economic Association (and others) should make some kind of official statement along these lines, and should reiterate it whenever the assumption that "the market is better" comes up in policy discussions. But for whatever reason mainstream economists typically want to avoid making explicit comments about the problems of "free markets".