The list of policy and predictive failures by mainstream economists is longer than the typical 9-year-old’s Christmas list.
They failed to foresee the 2007 mortgage bubble and the 2008 financial crisis. They cheered “green shoots” in 2009 when that was a complete illusion. They welcomed the “recovery summer” in 2010, which was nothing but more of the same punk growth. They spent six years pursuing QE and seven years with zero interest rates and had nothing to show for it except an inflated balance sheet, inflated asset values and $4 trillion of lost wealth through below-trend growth.
The latest failure was proclaiming “synchronized global growth” in 2017 when there was nothing of the sort. Major economies are now slipping into recession.
In this article, prominent economist Mohamed A. El-Erian says it’s time for economics to learn from failure and improve their analysis or face marginalization in the policy debate. He says economists should avoid the “herding” instinct (running in a consensus-based pack regardless of whether they’re right or wrong) and be more critical of Fed communications strategies.
He also says trade analysts should be less accepting of simple “free trade” dogma and work harder to see the perspectives of the victims of free trade who have lost good-paying jobs and benefits. Finally, he says that economists should adopt an interdisciplinary approach that integrates behavioral psychology, complexity and branches of applied mathematics that are outside the traditional (and flawed) equilibrium models.
These are recommendations we have been pointing to for years.
El-Erian’s suggestions are solid and long overdue. Just don’t hold your breath waiting for economists to follow his advice. They seem determined to persist in flawed methodologies until they are rendered completely irrelevant in the public debate on economics.
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