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Transcript of Assessing Economics
Bernanke and many other economists have been extremely helpful, saving our economy from further ruin
Bernanke’s Decision to Pump Money into the Economy to Stop the Recession was Correct According to Author
Trust in Economists Comes into Question - Esteem is Lost
In a recent lecture, Paul Krugman, winner of the Nobel prize in economics in 2008, argued that much of the past 30 years of macroeconomics was “spectacularly useless at best, and positively harmful at worst."
What Went Wrong with Economics?
High Status of Economists
John McCain joked that Alan Greenspan, then chairman of the Federal Reserve, was so indispensable that if he died, the president should “prop him up and put a pair of dark glasses on him".
Economics is not a slavish creed, instead it is a prism through which to view the world.
Politicians are not better than economists at directing or understanding the market.
Rational Fools - Three Critiques of Economists
Macroeconomists and financial economists helped cause the crisis.
They failed to spot the crisis.
They have no idea how to fix it.
Separation Between Keynes and Purists
Keynes - support unlimited government stimulus
Purists - oppose all stimulus
Author - encourages collaboration and understanding between macroeconomics and financial analysts
Public Disappointment with Economics
Efficient Market Hypothesis (EMH)
The price of a financial asset reflects all relevant, generally available information
Author defends economists using the EMH
If you could predict any downfall, it would just come sooner
We can’t stop downfalls
It is ridiculous to react before something happens
This is a Keynesian
From the Economist print edition
July 16th 2009
Macroeconomists and Financial Economists Helped Cause the Crisis
•Too focused on controlling inflation
•Ignore asset inflation
•Thought market would regulate itself
They Failed to Spot it
• Their models failed to spot illiquidity and risk
• Failed to recognize that capital markets do not work perfectly
• Some people warned of the crisis but Wall Street ignored it
They Have No Idea How to Fix it
In Defence of the Dismal Science
By Robert Lucas
From the Economist print edition from August 6th 2009
Can you guess the name of this economist who is shaping the way we think of economics today?
Do you think it is possible to avoid recessions or is it an inherent part of capitalism? If so, does this give validity to other systems of economics?
Is the metaphor of reacting far-before a car swerves into one's lane a good metaphor, or is it simply an excuse to alleviate responsibility from economists?
Who is ultimately responsible
for the oversight of the US economy? What about the world economy?
To what extent, if at all, did the failure to predict the current economic crisis and the difficulties of getting out of it damage the reputation of free markets?
Do you think any changes in the field of economics is in order? If so, where do you think improvement can be made?