7 ms·

>This is where academic theory comes in. The finance sector damages the economy because it does not function as well as the models contend. This is rather an u

>This is where academic theory comes in. The finance sector damages the economy because it does not function as well as the models contend. This is rather an understatement. Most neoclassical models (the dominant strain of economics, despite its demonstrated failure to predict crises) basically assume that the financial sector doesn't exist. This is why most economists' reaction was "nobody could see it coming" and their policy recommendation response to the crisis was "even more of the same, please" (deregulation, desupervision and de-facto decriminalization). Then they wonder why people don't respect them any more. "Hope", as such, does not come from the school of behavioral economics. That was getting trendy even before the crisis hit and did not help at all. Personally, I can think of only one economist who is making models that accurately model the behavior of financial institutions in the macro-economy - Steve Keen, who is resurrecting and extending upon Hyman Minsky's instability hypothesis.

TheOtherHobbes 12y ago
A lot of "uneducated" people could see 2008 coming. I had many conversations with people with no economic training who were all thinking "Uh oh..." The rational conclusion from this is that mainstream academic theory - i.e. not people like Keen - is a source of collective stupidity. See e.g. http://www.telegraph.co.uk/finance/economics/8089832/We-cant-predict-recession-says-Bank-of-England-deputy-governor-Charles-Bean.html http://www.telegraph.co.uk/finance/economics/8089832/We-cant... When untrained people can predict the future more accurately than trained experts, the training of those experts has negative social value.
- ghostberry 12y ago
  There are always people thinking "Uh oh..." Sometimes they are right.
- Ollinson 12y ago
  To paraphrase Nobel prize winning economist Paul Samuelson, everyone has predicted 9 of the last 5 recessions.
  - prostoalex 12y ago
    +1 to that. A lot of people predicted rapid fall of the US dollar following various stages of QE, and the number of Silicon Valley headlines with the word "bubble" in them went up significantly in the past 2 years, and yet...
- akg_67 12y ago
  “HFM: But he’s the expert, right? It’s a tough thing. If you have somebody who’s really trained in the mortgage business, he’s been in the mortgage business for fifteen years, in equilibrium he’ll do a great job. He’ll be able to pick, of the mortgage pools out there, which is the good one, which is the bad one. He did a very good job of that, because the ones that he picked were better than the market. But in terms of detecting the paradigm shift, the guy who’s just buried in the forest…he’s not going to see the big picture, he’s not going to catch the paradigm shift.” Excerpt From: Anonymous Hedge Fund Manager, n+1and Keith Gessen. “Diary of a Very Bad Year.” HarperCollins, 2010.
- TheCowboy 12y ago
  It depends on people's definition of mainstream academic economists, because in general, there has been strong predictive power in the models they use in how the effects of the financial crisis played out over time. There are surveys of academic economists out there that can back this up. This in contrast to mainstream people who talk about economics, who have been predicting hyperinflation for years now. There were many academics who warned that austerity policies would be a drag on the economy for years. There were people in academics warning about a possible housing bubble.
jeffreyrogers 12y ago
> This is why most economists' reaction was "nobody could see it coming" and their policy recommendation response to the crisis was "even more of the same, please" (deregulation, desupervision and de-facto decriminalization). The aftermath of the financial crisis seems to have been handled remarkably well though, don't you think? At least in the US the economy is doing fairly well and the deleveraging was handled admirably.
- caseysoftware 12y ago
  I think the metrics are doing well in that unemployment is down, the stock markets are up, and housing prices have mostly stabilized. Unfortunately, that ignores: - the labor participation rate is dropping steadily.. because long term unemployment is up. - the Fed has pumped $1T (yes, trillion) into the market each of the last 5 (6?) years. - wages have been stagnant and have only now reached 1998 levels. - education - previously a ticket into the middle class and beyond - has been devalued by poor standards but simultaneously the price tag has increased dramatically.
  - digi_owl 12y ago
    But then what defines a unemployed have been games to hell and back...
- ggchappell 12y ago
  This seems to be true from a short-term perspective. From a more long-term perspective, factors that led to the crisis have not really been dealt with at all. Dodd-Frank is hardly Glass-Steagall. The revolving door between finance and government is still spinning. Regulatory capture is in full swing. And that means -- if I might be prophetic for a moment -- that it's all going to happen again.
- crdoconnor 12y ago
  >The aftermath of the financial crisis seems to have been handled remarkably well though, don't you think? Hell no. It was used as an excuse to shovel money into the pockets of the ultrawealthy. >At least in the US the economy is doing fairly well By what measure? Because if you're going to count employment, you should factor out the people who used to have decent middle class jobs and are now scraping by working at walmart.

TheOtherHobbes 12y ago

A lot of "uneducated" people could see 2008 coming. I had many conversations with people with no economic training who were all thinking "Uh oh..." The rational conclusion from this is that mainstream academic theory - i.e. not people like Keen - is a source of collective stupidity. See e.g. http://www.telegraph.co.uk/finance/economics/8089832/We-cant-predict-recession-says-Bank-of-England-deputy-governor-Charles-Bean.html http://www.telegraph.co.uk/finance/economics/8089832/We-cant... When untrained people can predict the future more accurately than trained experts, the training of those experts has negative social value.

ghostberry 12y ago
There are always people thinking "Uh oh..." Sometimes they are right.
Ollinson 12y ago
To paraphrase Nobel prize winning economist Paul Samuelson, everyone has predicted 9 of the last 5 recessions.
- prostoalex 12y ago
  +1 to that. A lot of people predicted rapid fall of the US dollar following various stages of QE, and the number of Silicon Valley headlines with the word "bubble" in them went up significantly in the past 2 years, and yet...
akg_67 12y ago
“HFM: But he’s the expert, right? It’s a tough thing. If you have somebody who’s really trained in the mortgage business, he’s been in the mortgage business for fifteen years, in equilibrium he’ll do a great job. He’ll be able to pick, of the mortgage pools out there, which is the good one, which is the bad one. He did a very good job of that, because the ones that he picked were better than the market. But in terms of detecting the paradigm shift, the guy who’s just buried in the forest…he’s not going to see the big picture, he’s not going to catch the paradigm shift.” Excerpt From: Anonymous Hedge Fund Manager, n+1and Keith Gessen. “Diary of a Very Bad Year.” HarperCollins, 2010.
TheCowboy 12y ago
It depends on people's definition of mainstream academic economists, because in general, there has been strong predictive power in the models they use in how the effects of the financial crisis played out over time. There are surveys of academic economists out there that can back this up. This in contrast to mainstream people who talk about economics, who have been predicting hyperinflation for years now. There were many academics who warned that austerity policies would be a drag on the economy for years. There were people in academics warning about a possible housing bubble.

jeffreyrogers 12y ago

> This is why most economists' reaction was "nobody could see it coming" and their policy recommendation response to the crisis was "even more of the same, please" (deregulation, desupervision and de-facto decriminalization). The aftermath of the financial crisis seems to have been handled remarkably well though, don't you think? At least in the US the economy is doing fairly well and the deleveraging was handled admirably.

caseysoftware 12y ago
I think the metrics are doing well in that unemployment is down, the stock markets are up, and housing prices have mostly stabilized. Unfortunately, that ignores: - the labor participation rate is dropping steadily.. because long term unemployment is up. - the Fed has pumped $1T (yes, trillion) into the market each of the last 5 (6?) years. - wages have been stagnant and have only now reached 1998 levels. - education - previously a ticket into the middle class and beyond - has been devalued by poor standards but simultaneously the price tag has increased dramatically.
- digi_owl 12y ago
  But then what defines a unemployed have been games to hell and back...
ggchappell 12y ago
This seems to be true from a short-term perspective. From a more long-term perspective, factors that led to the crisis have not really been dealt with at all. Dodd-Frank is hardly Glass-Steagall. The revolving door between finance and government is still spinning. Regulatory capture is in full swing. And that means -- if I might be prophetic for a moment -- that it's all going to happen again.
crdoconnor 12y ago
>The aftermath of the financial crisis seems to have been handled remarkably well though, don't you think? Hell no. It was used as an excuse to shovel money into the pockets of the ultrawealthy. >At least in the US the economy is doing fairly well By what measure? Because if you're going to count employment, you should factor out the people who used to have decent middle class jobs and are now scraping by working at walmart.