1/12/09

Economists in Trouble

Yes, they’re the only economists we have, but the profession really is in a dismal state. Very few were ahead of the curve in warning us about the looming credit and housing bubbles. Now they have little authoritative to offer about the precise nature of a stimulus package that would be most effective. And when it comes to the trade debate, as I argue in The Tyranny Of Dead Ideas, they’ve let down the country (and jeopardized their own ideals) by treating the need to provide health and pension security for average Americans as an afterthought in the case for trade, rather than as a crusade the profession itself needs to lead if we're going to avoid a protectionist backlash.

Some respected economists need to lead their academic colleagues in a rethinking of the profession’s priorities. We need economics to make a bigger social contribution. As a glance at the agenda of the American Economic Association’s recent annual meeting suggests, too many of these folks spend their careers drilling down into highly quantitative trivia instead of developing fresh ideas on the broader challenges of political economy. It’s not just Wall Street that’s diverted too much of the nation’s economic talent into unproductive channels – it’s the narrow, tenure-producing but irrelevant work in too many economics departments, too.

4 Comments:

Blogger Bill Karwin said...

I'm still waiting for some economist to dare mention the elephant in the room: nationalization of the banks.

The problem facing the banks can't be a lack of money. They've already received $350B, and quite a lot of cheap money auctioned by the Federal Reserve earlier in 2008. Where did all that money go?

People like Robert Reich have stated that the real problem is that the financial market has lost its mutual trust. The banks are still too wary of each others' toxic assets, so they won't do the day-to-day interbank loaning necessary to keep the economy working.

The toxic assets are gradually being handled. But it's a painstaking process, getting the market to examine and bid on each CDS in turn, thus determining its market value. It'll take years, and the rest of working America can't wait.

I'd say the solution is to take the remaining $350B, plus the $800B+ they're now talking about, and forming a new, nationalized bank (hopefully one that does not participate in any of the post-FSMA monkey business), a bank that's ready to loan directly to businesses and local governments.

I have no doubt that the financial services industry will get their house in order eventually. But forming a national lending institution may be the only way to keep people working in the short term, until that can happen.

January 12, 2009 at 12:27 PM  
Blogger Bill Karwin said...

And as if on cue, I heard a story last night about Ben Bernanke proposing that the government create banks of its own, to acquire the toxic assets currently held by the financial services market.

http://marketplace.publicradio.org//display/web/2009/01/13/pm_bad_banks/

Not exactly the same thing as nationalization of the banks I conjectured in my previous comment, but we're inching closer...

January 14, 2009 at 10:20 AM  
Blogger Paul said...

I read somewhere that the estimate for the "toxic" assets out there is something like $2 trillion, and currently $1.2 trillion have been written off. In other words, we're about half way there.

Creating a nationalized bank might be the answer while the mop up goes on.

January 26, 2009 at 3:38 PM  
Blogger ockraz said...

'Yes, they’re the only economists we have, but the profession really is in a dismal state. Very few were ahead of the curve in warning us about the looming credit and housing bubbles. Now they have little authoritative to offer about the precise nature of a stimulus package that would be most effective'- awww; That's what I was afraid of... they are like weathermen :(

February 23, 2009 at 10:32 PM  

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