From any rational point of view, orthodox economics is in serious trouble. Its champions not only failed to foresee the greatest crash for 80 years, but insisted such crises were a thing of the past. More than that, some of its leading lights played a key role in designing the disastrous financial derivatives that helped trigger the meltdown in the first place.
What derivatives that caused the crash?
No futures or options caused anything at all. No, the crash was from housing finance: straight old plain securitised mortgages. And no, a CDO is not a derivative: it is a securitised mortgage. A CDS is not a derivative either: it is an insurance contract.
Others, such as the Nobel prizewinner Robert Lucas, insisted that economics had solved the “central problem of depression prevention”.
Have we just had a depression? In the US/UK etc, no we haven’t. Because we do indeed know how to stop one. We can argue about whether it’s been the budget deficits (Keynesian stimulus) or monetary policy (as Friedman pointed out, that’s what caused the last one, and we’ve done the QE etc to prevent it) but we haven’t had a depression so we could indeed say we know how to stop one.
Except in Latin Europe of course, where they have indeed had a depression and where they’ve not been allowed to do either the fiscal or the monetary stuff. Which would be good evidence again that we do know what to do.
Any other profession that had proved so spectacularly wrong and caused such devastation would surely be in disgrace. You might even imagine the free-market economists who dominate our universities and advise governments and banks would be rethinking their theories and considering alternatives.
Given that we’ve just proved the theories right then why would anyone need to rethink them?
After all, the large majority of economists who predicted the crisis rejected the dominant neoclassical thinking: from Dean Baker and Steve Keen to Ann Pettifor, Paul Krugman and David Harvey. Whether Keynesians, post-Keynesians or Marxists, none accepted the neoliberal ideology that had held sway for 30 years; and all understood that, contrary to orthodoxy, deregulated markets don’t tend towards equilibrium but deepen the economy’s tendency to systemic crisis.
Both Dean Baker and Paul Krugman would insist that they operate entirely within the neo-classical paradigm. As an aside it’s Dean Baker who keeps insisting that it really was all about housing finance, nothing else. And to argue that Keynesians or post-Keynesians are not neoclassical is an abuse of categorisation. As is the equation of neoclassical with neoliberal.
And seriously, you want to argue that Krugman, an expert on international trade, argues that markets don’t tend toward equilibrium? Seriously?
Eugene Fama, architect of the “efficient markets hypothesis” underpinning financial deregulation,
No, the EMH does not underpin deregulation. It only insists that markets are efficient at processing the information that determine prices. And just about every economist would agree with the weak version and even Fama doesn’t agree with the strong.
Many of their students, though, have had enough. A revolt against the orthodoxy has been smouldering for years and now seems to have gone critical. Fed up with parallel universe theories that have little to say about the world they’re interested in, students at Manchester University have set up a post-crash economics society with 800 members, demanding an end to monolithic neoclassical courses and the introduction of a pluralist curriculum.
This is where the misclassification above comes in. If Keynes and post-Keynes are not neoclassical, and also that economics courses are rigidly neoclassical, then how come every economics course in the country includes both Keynes and post-Keynes?
You’re spouting drivel Milne, pure drivel.
They want other schools of economic thought taught in parallel, from Keynesian
Seriously, please, can anyone at all come up with any evidence of any kind that undergraduate students in economics in the UK are not taught Keynes? Please? Shit, the last time I looked at the GCSE syllabus it was there.
So, for example, here is part of Manchester University’s introductory Macroeconomics class, something compulsory for all Econ students.
The aims of this course are:
(i) To provide a self contained introduction to macroeconomics for
general social scientists.
(ii) To cover the preparatory material for more specialist courses in
economics in the second and third years.
Objectives (Learning Outcomes)
On completion of this unit successful students will be able to:
(i) Demonstrate their knowledge of the major macroeconomic
issues, policy objectives and national accounts.
(ii) Demonstrate their understanding of the extended Keynesian
income-expenditure model algebraically and diagrammatically.
(iii) Understand the creation and role of the Money in the economy.
(iv) Use the model to analyze a variety of fiscal and monetary policy
(v) Demonstrate their critical awareness of the exchange rate
mechanism for macroeconomic policy.
What the fuck is Milne talking about?
Is he simply entirely ignorant or is there something else afoot?