The post-autistic economics review

[Jason_McCullough]

So far, the referred papers you’ve cited on the CCC have consisted of mentioning Gorman aggregation.

In the previous discussion about the minimum wage note you referenced multiple papers and what not and provided some explanation of the arguments. I still find them very difficult to believe, having worked on both the management and employee sides of minimum wage jobs, and there’s all that strange stuff about Card catching hell for contradicting the consensus, but at least you made an argument.

[jeffd]

ARISE!

I’m going to use this thread as a sort of meta-discussion thread about the state of ecomics. In other words, this is StGabe’s Personal Playground Post. :)

Anyway - in quoting Tim Harford, Ezra Klein makes a good point: economics theory pretty much does predict the financial disaster. The fundamental problem in 2008 was that financial markets were treating a bunch of very risky assets as if they were riskless. Economics can easily predict what will happen in that scenario: a disaster. The question is: why didn’t economics predict this disaster?

The answer is probably that they didn’t have the data. Or that they didn’t look at the data. Ezra concludes:

@Ezra Klein

It’s useful for economists and investors and journalists to say that the problem was we simply weren’t smart enough, that our reigning dogmas were wrong, our theories inadequate. But looking back, that wasn’t it at all. Michael Lewis’s “The Big Short” is all about investors who took the time to read through these contracts and bond packages and realized, almost instantly, that something was very, very wrong. But most of us weren’t doing that. That was hard, boring work. And the hope was that theory could get us out of hard, boring work. But that’s our fault, not the theory’s fault.

He’s right. Lots of people did predict the disaster! It didn’t take any exotic theories or models to do so.

So the question should not be “Why did economists fail to predict the financial crisis of 2008?” It should be “Why didn’t economists notice?” It’s a subtle difference, but it’s important.

Also: I recommend The Big Short, it’s pretty succinct and very readable. It also does a great job of selling just how bad the whole subprime mess was.