Some Economists are Idiots

I am not an economist. I took economics in college, and then again as part of my MBA program. The professor droned on about mathematical equations while I wanted to discuss the philosophy of economics: the assumption underlying the "science". Back in those days I was too timid to confront my teachers.

I read an article by Paul Krugman. He is an economist who writes for the New York Times. The article is pretty long by today's standards, but if you're interested in economics, it's worth reading. You can read it yourself here:
(http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html) The article is entitled "How Did Economists Get it So Wrong?". Here's the first few lines:

"As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. Until the Great Depression most economists clung to a vision of capitalism as a perfect or nearly perfect system. That vision wasn’t sustainable in the face of mass unemployment, but as memories of the Depression faded, economists fell back in love with the old, idealized vision of an economy in which rational individuals interact in perfect markets, this time gussied up with fancy equations."

After reading it, I did not feel so stupid. The neo-classical camp of economists have been running the show since at least the 1980s. This is the "free market does no wrong" crowd. Now their little theories are proving to be a bunch of BS.

I knew that in college.

First, how can a mathematical model take into account all the variables in something as complex as the economy? It amuses me that the same crowd that thinks climate is too complex to predict apparently thinks that free-market economists are infallible in something as complex as our economy.

Second, the assumption that we're all rational and act in our best interests is a bunch of crap too. Everyone knows we make economic decisions based on emotions that are far from rational. The assumption in economics is that no one wishes to deceive us, so that we enter transactions with "prefect knowledge" - which is obviously wrong. People get ripped off every day. Buyer beware!

Lastly, why do we assume that what is in my best interest is in the best interest of society as a whole? Or even in one other person's best interest? If I hoard all the food in a small town and then sell it at enormous profit to the townspeople, that is clearly in my best financial interest. But, not so much for everyone else.

Now there's a new thing called "behavioral economics". Maybe it's better - I don't know much about it yet, but I'm going to try and learn.

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