If the financial crisis and the Great Recession changed one thing in the minds of macroeconomic policy makers, it was to make them care about finance. It seems almost unimaginable, seven years later, to think that anyone could have ignored the connection between the financial system and the rest of the economy. It’s an almost dreamlike experience to look at the macroeconomic models made before 2009 -- many of which are still in use today -- and search in vain for any reference to leverage, asset prices or the financial industry.
Today’s macroeconomic policy mavens are determined not to repeat the mistakes of the past. At the International Monetary Fund’s April conference on “Rethinking Macro Policy,” much of the focus was on the interaction between government policy and finance. IMF Chief Economist Olivier Blanchard summarizes the conference here and here.
The biggest basic question is what the government can do to limit financial risk. There are three basic approaches...
So basically, the IMF conference confirms that top macro policy thinkers are not certain about how to approach the thorny problem of the financial system. But the other takeaway from the conference is that these doubts are not limited to financial policy. Macro thinkers are very confused about what monetary policy should be doing to fight recessions and inflation, as well....
So the IMF conference demonstrates that even at the very top of the economics profession, there is massive confusion and uncertainty. The macroeconomics world is in a great state of flux, with all of the old verities having been called into question, and new bedrock principles as yet undiscovered.These people should resign in disgrace and make room for new blood.
Bloomberg View
Finance Stumps World's Best Minds
Noah Smith | Assistant Professor of Finance, Stony Brook University
6 comments:
The Macro economic world is just wrong - caught as it is in a huge GroupThink amongst a class of people that are actually mere lackeys of those with the money and power and have absolutely no idea how ordinary people live their lives because largely they've never met one.
I just love the idea that the “world’s best minds” are to be found amongst the ranks of academic economists. Hilarious. Presumably Rogoff and Reinhart who continue equate household debts with national debts are amongst the “world’s best minds”.
I suggested on one of my blog posts a year or two ago that Robert Mugabe should be put in charge of economics at Harvard. I’m still convinced that would improve things there.
Tom Hickey:
http://www.theguardian.com/business/2015/jun/12/academics-attack-george-osborne-budget-surplus-proposal
http://www.theguardian.com/politics/2015/jun/12/osborne-plan-has-no-basis-in-economics
The belief that financial markets are efficient and thus can be ignored has been problematic for decades. Minsky was fighting against that bias in the 1960s, explaining how it did not match up to real world experience.
Meanwhile, Noah Smith is now running around saying that heterodox economics is being left in the dust by mainstream macro's push into empirical analysis.
Fighting the last battle while ignoring everything currently relevant. At least academic economics hasn't lost their commitment to endless debates of little usefulness.
Mugabe for Harvard Dean!!! I love it.
meanwhile, just replace "Best" with "Busted" in this articles title, and everyone would realize that there's nothing to see. Just move along, ASAP.
A Gong-Show by any other name would be as harmfully slapstick. Why do people watch either version?
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