By L. Randall Wray
Ah, the Eternal Sunshine of the Recessed Mind!
Here’s an unintentionally–but riotously–hilarious mea culpa by Olivier Blanchard.
Here’s the CliffsNotes version: Yes, we didn’t see nothing coming. But that isn’t our fault. The Global Financial Crisis—the biggest calamity since 1929—was invisible to us because it had been lurking in the dark corners of the financial system.
However, we had been creating highly sophisticated economic models in which there were no financial institutions—at least nothing like those in the real world. Ours were transparent. They were well-capitalized. Their risks were perfectly hedged. There was no uncertainty. There was no chance of financial instability because the market forces always—inevitably—drove toward equilibrium. We had very nicely behaved DSGE models—models with no default risk. Where everyone was civilized and played nice. No one ever missed a payment. All debts were always paid. On time.
In our world, even Lake Woebegone would have been impossibly unruly.
By Payam Sharifi
The subject and discussion of Ethics for economists is a recent but welcome phenomenon. The creation of the documentary “Inside Job” highlighted the ethical issues facing economists. Various outlets, consisting of many from outside the economics profession as well as some inside, have been demanding that economists and economics itself adopt a code of ethics. Many articles, blogs, and academic papers since that time have been beating the drum for a code to be adopted, as a simple Google search will show. The recent Reinhart and Rogoff flub has also reinvigorated this debate. The objective of this exposition is to show why economics (as it exists currently) cannot, and will not, ever be able to adopt that code of ethics. Well, why not…as I’m sure some of you are asking. Many other professions have a code of ethics that they adhere to…why is it that economics cannot do the same? There are in fact many reasons why this is so. I also advance another approach to economics that has existed for decades, if not longer, in the search to answer the question that forms this essay. Another, but seemingly unrelated topic that is sometimes debated among mainstream economists is the need for economic theory itself to change. As we seek to answer the question of whether Modern economics can be an Ethical science, we will find that the question of economic theory is in fact related. Continue reading