Significant Error

Bank official admits economists were to blame for recession

A top economist at the Bank of England has admitted that his profession should share the blame for the financial crisis and recession.

By Philip Aldrick, Economics Editor, The Telegraph

12:01AM BST 01 Aug 2012

Andy Haldane, executive director for financial stability at the Bank (of England), said economists misled policymakers in the years before the crisis by promoting a “blinkered” view of the world based on the assumption their theories were unfailingly correct.

…

He said the error was not driven by economists seeking financial gain but “the quest for certainty”. But their error was to think of the assumptions used to build economic models as cast-iron laws.

“A concept gets formalised and then gets socialised and then believed as an almost theological doctrine,” he said. “The notion of not knowing, of imperfect information, of uncertainty, got lost from economics and finance for the better part of 20 or 30 years.

“I think one of the great errors we as economists made was that we started believing the assumptions of economics, and saying things that made no intellectual sense. We started to believe that what were assumptions were actually a description of reality, and therefore that the models were a description of reality, and therefore were dependable for policy analysis.

“With hindsight, that was a pretty significant error.”

(h/t Naked Capitalism)

Just in case you think this will have any effect on faith cult not science voodoo academics-

Greenspan – I was wrong about the economy. Sort of

Andrew Clark in New York and Jill Treanor, The Guardian

Thursday 23 October 2008

A long-time cheerleader for deregulation, Greenspan admitted to a congressional committee yesterday that he had been “partially wrong” in his hands-off approach towards the banking industry and that the credit crunch had left him in a state of shocked disbelief. “I have found a flaw,” said Greenspan, referring to his economic philosophy. “I don’t know how significant or permanent it is. But I have been very distressed by that fact.”

It was the first time the man hailed for masterminding the world’s longest postwar boom has accepted any culpability for the crisis that has engulfed the global banking system.

…

“I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms,” said Greenspan.

They have learned nothing at all.

Who To Listen To

Paul Krugman, The New York Times

July 30, 2012, 9:03 am

One thing that’s striking in Portes’s discussion – and something I very much agree with – is the irrelevance of formal credentials. As we’ve debated how to deal with the worst slump since the 1930s, a distressing number of economists have taken to arguing on the basis that they have fancy degrees and you don’t – or in some cases that well, you may have a fancy degree too, and even a prize or two, but in the wrong sub-field, so there.

But all this counts for very little, especially when macroeconomics itself – or at any rate the kind of macroeconomics that has dominated the journals these past couple of decades – is very much on trial.