Note to “The Economist” – your solution is the very problem itself

economics whats wrong

I’ve just been reminded of an article from The Economist published 16 July 2009 titled, What went wrong with economics. Note that it is not a question but a statement. The Economist naturally has no clue being an ultra-Keynesian rag but this, at least, can be dredged from its commentary:

And if economics as a broad discipline deserves a robust defence, so does the free-market paradigm. Too many people, especially in Europe, equate mistakes made by economists with a failure of economic liberalism. Their logic seems to be that if economists got things wrong, then politicians will do better. That is a false—and dangerous—conclusion.

What’s missing apparently is a more sophisticated financial model to graft onto the Keynesian core of what The Economist thinks of as good economics:

Central banks are busy bolting crude analyses of financial markets onto their workhorse models. Financial economists are studying the way that incentives can skew market efficiency. And today’s dilemmas are prompting new research: which form of fiscal stimulus is most effective? How do you best loosen monetary policy when interest rates are at zero? And so on.

As early as July 2009 they could see that the fiscal stimulus had been a disaster. They just do not see that trying to drive an economy along using either monetary or fiscal policies is the problem. Public spending and near-zero interest rates leave an economy dead in the water but they cannot see that their solution is the very problem itself.

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