Madness at MIT: Economists Gone Stupid

01-29-2011 • EconomicPolicyJournal.com

The report contains a clip by Harvard economist and top economic textbook salesman, Greg Mankiw. His take on the recent financial crisis is that the reason mainstream economist didn't forecast it was because it was an outlier event. Says Mankiw, economists weren't thinking about such an event because it would be like thinking about an Asteroid landing in M.I.T's Central Square. The levels of the absurdity of this comment are mind boggling. First, and foremost, Mankiw completely throws down the memory hole those economists who subscribe to the Austrian theory of the business cycle and who do not see the recent crisis as a unique black swan event, but the result of central bank monetary policies that cause recurring crises in economies both here, and around the world. These economists far from being surprised by the event correctly forecasted the crisis. Secondly, even if say, for argument's sake, that the crisis was an outlier "asteroid"event, this does not mean you can't see the asteroid when it has entered the atmosphere and about to crash on your head. Plenty of non-economists also saw the crisis coming becasue of the size of the asteroid heading at them. The truth of the matter is that mainstream Keynesian economists use incorrect tools to understand the economy and will regularly fail in their forecasts. The NPR report closes with a clip from the former chairman of President Obama's Council of Economic Advisers, Christina Romer, who has admitted she didn't have a clue as to how bad the economy would get. In this NPR clip, she now tells us that she "can't sound too optimistic." Yet, if nothing else, the Bernanke money printing will increasingly make the economy look bright in terms of the data that Romer, and other mainstream economists will look at. So not only did she miss the crisis, she's missing the Bernanke manipulated rebound.