Saturday, July 18, 2009

The Failure Of The Economist On The Failure Of Economics

I once liked The Economist. While it was never perfect, it still made a lot more sense than for example Business Week and often implicitly or even explicitly praised Austrian insights. These Austrian insights were mixed with some Keynesian theories, but semi-Austrian still beats non-Austrian.

Since the start of the recession that The Economists and others warned about based on Austrian analysis, however, it has ironically abandoned its partial embrace of Austrian analysis and reverted back to pure Keynesianism.

One example of this is in the latest issue where they discuss the pressing issue of the failure of [non-Austrian] economics, both in a leader as well as in one article about macroeconomics and one about financial economics.

The article conspicuously leaves out any mentioning of Austrian economics, or the role that the use of advanced mathematics played in overlooking the problems. They do however focus on the false alternative of Keynesianism vs. New Classical "perfect markets" doctrines, with the upshot that the Keynesians were right all along.

The finance article is really the only one which makes at least some sense, as it points out the unrealistic nature of many of the assumptions of the Efficient Market Hypothesis and some of its logical contradictions. And it admits that neoclassical financial economics really can't explain (phrased in euphemistic terms as "Financial economists also need better theories of...") many aspects of modern financial markets. But again, it leaves out how Austrian economists like me have already solved most of these apparent puzzles.

So in conclusion, as refreshing as it is to see The Economist expose the failures of neoclassical economics, it is depressing to see that they fail to see why it has gone wrong and how they have forgotten the insights they once displayed-at the very time when those insights have proven themselves more correct and relevant than ever.


Blogger SAJ said...

Mario Rizzo comments on this subjects here:

7:26 PM  

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