The fatal flaw of economics
The fatal flaw of economics is that it’s not often that economists admit to being wrong. So it was big news when two British economists sent an extraordinary letter to Queen Elizabeth II, in which they tried to explain why they and their colleagues failed to foretell the financial crisis. This failure, they wrote,
was a failure of the collective imagination of many bright people
Or, put another way, everyone was to blame, meaning no one was to blame.
A better explanation is that economists ignored messy realities that don’t lend themselves to expression in mathematical models or are intractable to formal analysis.
That’s not a failure of economists, it’s a failure of economics itself. In its search for scientific certainty, economics has arrived at a point where no two economists agree on what they see in front of them, much less on what the future may hold. The failure of economics demands more than a few apologies.
The discipline needs to acknowledge its inadequacies and reorient its training and research, or face a future of growing irrelevance.
Related articles
- From Macroeconomics to Freakonomics – TIME (time.com)
- British Economists Send Apology To Queen (huffingtonpost.com)
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By robthompson on November 23rd, 2009 at 7:30 am
Just published: The fatal flaw of economics:
The fatal flaw of economics is that it’s not often that economists … http://bit.ly/5aNXGn
This comment was originally posted on Twitter
By shaun sayers on November 25th, 2009 at 6:40 am
It's not that economics is flawed or that it fails in any way. In my experience economics contains a set of fundamental truths that can explain a lot of what happens in our world. Things like "there's no such thing as a free lunch", scarcity and supply & demand. Predicting the future on the other hand is a different kettle of fish altogether. The basic problem that we face right now is that economic systems are becoming increasingly integrated. That means the systems are moving away from more traditional and easier to predict linear systems based on a single nation's actions, to complex, multi-national no-linear systems. In other words it is becoming more akin to a model we might use for predicting climate change, where there will certainly be cause and effect relationships, but untangling the complexities of them is very difficult to predict. The principle of the butterfly effect applies in this case
So who calls it right? Well somebody will, through statistical probability alone. Provided there are enough differing predictions (and there are) then somebody will be right at the end of the day, but are they "right" or is it just pure chance? The reality is that the systems are now so complex that we simply don't understand all the causes and effects anymore. My belief though is that underneath the fundamental laws of economics, like those of physics, will hold firm