Crumbling Institutions, Crumbling EconomyBy: masaccio - FDL
Sunday June 19, 2011 10:40 am
<snip>
The foundations of our society have been rotting for years. The Great Crash of 2008 was the inevitable result. As with most things in a complicated society, things don’t crumble from one big change, but from a number of small changes that eat away the pillars on which the society is built.
Three of the major contributors to the Great Crash were incompetent academic economists, weakened regulation and fraud.
Academic Economists. Academic economists were entranced by mathematics, and learned to write everything in the form of equations. Once those equations were on paper, they became real, and any outcome you could produce with algebra or calculus became just as real. They began to push those equations farther and farther, without regard to the way real people act.
Consider the Efficient Market Hypothesis. In its weak form, the EMH says that prices of securities reflect all publicly available information. Everyone on Wall Street, and many of the rest of us, knew there was a housing bubble, and that it could not continue. That fact wasn’t reflected in prices on the stock market. There was some academic pushback, but the EMH is still a mainstay of academic thinking.
Even more astonishing is the idea pushed by academic economists that markets police themselves. I first met this argument when I was the Securities Commissioner in Tennessee. A professor at Vanderbilt’s business grad school told me that I was wasting my time regulating securities and prosecuting fraud cases. His view was that people would cheat, but they wouldn’t be able to do so for long because the markets would figure it out and push them out. That nonsense was the rationale for dismantling the regulatory apparatus.In the wake of the Great Crash, academic economists have not changed their views, let alone offered mea culpas for their sins against good sense. The people who got it wrong are still running things, and still pushing their failed ideas.
Weakened Regulation...<snip>
More:
http://firedoglake.com/2011/06/19/crumbling-institutions-crumbling-economy/:kick:
Printer-friendly format
Email this thread to a friend
Bookmark this thread
(1000+ posts)
Send PM |
Profile |
Ignore
