In an interview published last year on the Federal Reserve Bank of Minneapolis website, he[Sargent] dismissed critics of the state of macroeconomics as too ignorant to deserve a response. Asked to explain how his research illuminated the recent crisis, he makes much of the finding that deposit insurance can halt bank runs. This insight is not, however, unique to Prof Sargent, who must be aware that the establishment of the Federal Deposit Insurance Corporation precedes the paper he cites by 50 years.---In their [Sargent with fellow Nobel laureates Bob Lucas and Ed Prescottworld], the validity of a theory is demonstrated if, after the event, and often with torturing of data and ad hoc adjustments that are usually called “imperfections”, it can be reconciled with already known facts – “calibrated."---Rational expectations consequently fail for the same reason communism failed – the arrogance and ignorance of the monopolist.---Only Prof Sargent’s econometricians were wedded to a single model and could, as usual, explain the crisis only after it had occurred. For them, the crisis was a random shock, but the occasion for a Nobel prize.
The full column is here.
In the depths of the coming depression they will wonder about economists like him.
ReplyDeleteTrying to apply the maths of the physical world to human activity is impossible. As soon as economists can realise this then a true science of economics can emerge.
Baron Rothchild said in 1810 'buy when the blood is running in the streets'. Maybe then it will be the blood of economists and politicians.
Sigh!
Furthermore - it can be argued that having deposit insurance has created the banking crisis in the first place as it creates a moral hazard.
ReplyDeleteYeah, that's a good one - Sargent's one "practical" prescription is moral hazard. A great success, that. You really can't make this stuff up.
ReplyDeleteWow! How many years at university economics does it take to become this stupid? They have minds of children.
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