Economists Singing Out of Tune

In the song “A Little Help From My Friends,” the Beatles asked the question:

“What would you do if I sang out of tune?                                                                                   Would you stand up and walk out on me?

(Although it’s a Beatles tune, it’s hard to think of it without hearing Joe Cocker’s voice.)

Well, economists have clearly been singing out of tune as our economy crumbles around us. And now the audience is starting to walk out. This article appeared a few days ago and I thought I had lost it until it popped up in one of my Google Alerts. I was thrilled to find it again because it goes to the very heart of what I’ve been saying – that economists are totally missing the mark. Wolfgang Munchau doesn’t come all the way around to a new economic theory as I did, but its significant that others are beginning to ask the same question: “If economists are so smart, why is our economy such a mess? Why is economics the one field where nothing is improving?”

In this Financial Times commentary, Wolfgang Münchau … questions the very foundation of accepted economic theory and modern central banking.

As the Bank of International Settlements said in its latest annual report, subprime might have been the trigger for this crisis, but not the cause. We do not have a full understanding yet of what happened but the BIS suggested that fast expansion of money and credit must have played a role. I would go further and say this is not primarily a crisis of financial speculation, but one of economic policy. Its principal villains are therefore not bankers, but economists – not in their role as teachers and researchers, but as policy advisers and policymakers…

The problem with economists is that they have strayed too far from the simple math of a balance sheet and tried to turn economics into some far more complicated science or worse, a game played with their latest darling concept, “game theory.” They would be much better served by focusing on the balance sheet and asking the question “why” when the numbers don’t add up. They would be better off if they would get over their childish anger at Malthus for smearing the reputation of their “science” and start questioning what happens when we try to cram more and more people into the same amount of space. What happens to per capita consumption? What happens when productivity rises but per capita consumption falls? What happens when two nations, grossly disparate in population density, attempt to trade freely with each other? Why is it that their beloved “principle of comparative advantage” seems to failing the U.S. so disastrously? (For answers to these questions, read Five Short Blasts.)

Our next president would be much better served if he chose accountants for his key economic roles instead of these “economists” whose brains have been turned to mush through years of learning a bunch of irrelevant gibberish.


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