Friday, July 30, 2010

Pontificating on Economics

Simon Rowney reminds us that "the global financial crisis... was unpredicted by all but the acknowledged unorthodox economists" — Pope has authority to talk about economics. The author "would have thought this would damage the reputation if economic orthodoxy but it seems the opposite is the case." An excerpt:
    Paul Krugman is an prime example of an economists having failed to predict the GFC and not losing his reputation or influence on socio-economic policy. The 2008 Nobel prize winner and New York times columnist provided a rather simplistic analysis of where economists went wrong in 2008. He suggested that economists had preferred mathematical beauty to real truth, they had failed to realise that markets and institutions are not perfect and that people often behave irrationally.

    Krugman remains blind to the fact that the economic view of rationality is a stunted and limp view of the real nature of this divine gift.

    The Popes have rightly criticised economists for their failure to come to terms with the nature of the human person.

    Modern economics was conceived during a time when psychology was at a low point in history. The mind was little understood and there was a deep suspicion of mental structures. The Enlightenment's revolt from the middle ages had rejected the faculty view of the soul. For economics this meant the rejection of notion of a hierarchy of goods and the development of a utilitarian calculus view of rationality.

    In more recent times the structured nature of the mind has been rediscovered and the corresponding hierarchy of goods and broader notion of rationality developed. Unfortunately this has not found it's way into economic theory which suffers from sorry origin.
Interesting. The Austrian School, whose "unorthodox economists" were among those who predicted the global financial crisis, was first known as the "Psychological School."

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