Time to Revisit the Mainstream Theoretical Framework
There’s a great article in today’s Vancouver Sun hammering on the fact that all major mainstream economists failed to anticipate the economic crisis. Provocatively titled Economics 101: Everything you know is wrong, the article quotes James Galbraith’s indictment on the mainstream of the profession that originally appeared in a New York Times Magazine article: “There are thousands of economists. Most of them teach. And most of them teach a theoretical framework that has been shown to be fundamentally useless.” Ouch!
It’s about time that economists be held accountable for the forecasts they dish out so liberally. These forecasts come out of direct application of theoretical fundamentals of (most often) neoclassical economics and should be treated as hypotheses are in science. If your hypotheses don’t hold up, you revise the theory. What a novel idea!
The best part of the article comes at the end:
Did economists, then, miss the big bomb that blew up the economy?
“We missed the size of the bomb,” Beaudry said. [Prof. Paul Beaudry of UBC]
A couple of questions come to mind, then:
Can the bomb be defused before it does any lasting damage?
Should economists be allowed to handle explosives?