Monday, November 3, 2008

Galbraith Nails It and Mankiw Doesn't Sound Happy About It

Greg Mankiw writes:

I was struck yesterday by an excerpt from an interview with economist James Galbraith:

But there are at least 15,000 professional economists in this country, and you’re saying only two or three of them foresaw the mortgage crisis?

Ten or 12 would be closer than two or three.

What does that say about the field of economics, which claims to be a science?

It’s an enormous blot on the reputation of the profession. There are thousands of economists. Most of them teach. And most of them teach a theoretical framework that has been shown to be fundamentally useless.

Like his late father, Galbraith the younger is highly critical of mainstream economics...

Fortunately, I made the cut, and called the mortgage crisis back in 2004.

And, Galbraith is correct when he says:

Most of them teach. And most of them teach a theoretical framework that has been shown to be fundamentally useless.

Mainstream economists have a limited understanding, if any of the business cycle, as I recently pointed out in my comments re: Mankiw's best selling texts.

Further, almost all economists fail to understand the basics of the most important aspect of economics, entrepreneurship. Indeed, there are probably even fewer that do, than the number that called the mortgage crisis. And although, it is an Austrian economist, Israel Kirzner, who advanced the concept of entrepreneur. I don't think most Austrians truly recognize the depth of Kirzner's analysis.

I don't follow Galbraith close enough to know the direction he would like to see economics go (Nothing he has written has shown up on my radar as something I would be interested in reading), but he clearly sees the glaring failures of mainstream economists brought to you by the likes of Mankiw, Krugman etc.

Yes, Mankiw should wince at Galbriath's criticism, since it is texts like Mankiw's (and that of his best selling predecessor Paul Samuelson) that have raised generations who think economics is boring, are clueless about economics and result in a country where a man can be elected president who doesn't have the first clue about economics. How entrepreneurshp works and the nature of the business cycle should be common knowledge the way the fact that the world is not flat is common knowledge. Mankiw has failed us big time.

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