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The High Priests of Capitalism

October 30, 2011

Those who want to justify morally dubious behaviour to themselves or others, love to hide behind an ideology. One such ideology is the wisdom of the free market (a.k.a. market fundamentalism). This is justified by false mainstream economic theory, namely that body of theory known as the neoclassical synthesis. Those economists who preach this, or teach it to future politicians, or financial journalists must accept some responsibility for the mess we are in. Even worse is the way they treat those who challenge their views. Deviation from orthodoxy is enough; the basis for heretical views is not examined. They do not get published in top journals, at least in the West.

The orthodox economists are not scientists. They are the high priests of casino capitalism – see also my post. ‘Is Economics science?’

Foremost amongst the High Priests is Robert Lucas, John Dewey Distinguished Service Professor of Economics at the University of Chicago. In answer to the Queen’s question about the 2008 crash, “Why did none of you see this coming?” he answered in a guest article in The [Economist in August 2009], that the crisis was not predicted, he explained,
because economic theory predicts that such events cannot be predicted. His argument was based on the ‘efficient markets hypothesis’  which states that the price of a financial asset reflects all relevant, generally available information. If an economist had a formula that could reliably forecast crises a week in advance, say, then that formula would become part of generally available information and prices would fall a week earlier.

OK no-one can forecast who will first realise that a trainwreck is coming, or exactly when that will be, but it is possible to say that a bubble is building and will burst soon [Werner 2005, Chap 16].

More damaging, the false theories of Lucas and his like have given rise to doctrines that untrammelled free markets are optimal and that government  intervention can only be harmful – see my post on Is Economics a Science?

70 Harvard economics students walked out of a class on Wed 2nd Nov 2011 in support of the Occupy movement, and against ‘conservative’ economics, see: http://www.thecrimson.harvard.edu/article/2011/11/2/mankiw-walkout-economics-10/. Well, it’s a start!

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