Sunday, March 15, 2009

Failure of economists, not economics?

Dani Rodrik has an excellent Project Syndicate article, where he lays the blame squarely on economists, for not anticipating and forewarning us about the crisis, but also for not being able to lay out convincing enough explanations and policy prescriptions for getting oput of the crisis. He writes,

"The problem is that economists (and those who listen to them) became over-confident in their preferred models of the moment: markets are efficient, financial innovation transfers risk to those best able to bear it, self-regulation works best, and government intervention is ineffective and harmful... Economics is really a toolkit with multiple models - each a different, stylized representation of some aspect of reality. One's skill as an economist depends on the ability to pick and choose the right model for the situation... Instead of presenting menus of options and listing the relevant trade-offs - which is what economics is about - economists have too often conveyed their own social and political preferences. Instead of being analysts, they have been ideologues, favoring one set of social arrangements over others."

And about the intellectual hubris among economists that prevent them from sharing their intellectual doubts with common public, he writes,

"No economist can be entirely sure that his preferred model is correct. But when he and others advocate it to the exclusion of alternatives, they end up communicating a vastly exaggerated degree of confidence about what course of action is required... Economics can at best clarify the choices for policy makers; it cannot make those choices for them. When economists disagree, the world gets exposed to legitimate differences of views on how the economy operates. It is when they agree too much that the public should beware."

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