From an Economist -- How Did Economists Get It So Wrong? And still getting it wrong!

[David Farber <dave () farber net>]

Begin forwarded message:

From: Newmedia () aol com
Date: September 8, 2009 10:57:56 AM EDT
To: dave () farber net
Subject: Re: [IP] From an Economist -- How Did Economists Get It So  
Wrong? And still getting it wrong!

Bob:

Of course many aspects of the future can be predicted.  However, they  
tend to be cyclical phenomenon and the predictions are only  
directional and not detailed enough to "take to the bank."

Arguably, what we know about the present and past also fall into the  
same category.  "Fortune-telling" has the same fundamental  
epistemological problems that it always did.

The primary problem with predictions that focus on cycles is that they  
appear to exclude human agency -- explaining why they are usually  
ignored, since people want to believe that they (or at least their  
ideas) are important.

The most important economist who focused on these cyclical topics was  
Joesph Schumpeter.  We get our phrase "creative destruction" from him  
but, unfortunately, it comes to us via a path that obscures its  
original meaning in the matrix between innovation and invention.   
Indeed, his1939 book "Business Cycles: A Theoretical, Historical and  
Statistical Analysis of the Capitalist Process" in which is the origin  
of the notion is long out-of-print and was not read by George Gilder  
before he popularized the phrase in Forbes.

Schumpeter lost a very public battle in the 1940's to Keynes etal and  
is simply not taught today.  Just ask any recent graduate of Harvard,  
where he taught for most of his career, if they have even heard of  
him.  I have.  They have not.

I once had an exchange with Hal Varian (now chief economist at Google)  
about why modern economists seem to ignore business cycles.  His  
answer was a direct one.  No one will get a job or publish in a  
journal or get a prize for discussing that topic.  He told his  
graduate students at Berkeley to ignore it.  Subject closed.

Greenspan was (and is) simply wrong.  Bubbles are easy to predict.   
Most people will ignore the prediction but that doesn't save their pot- 
o'-gold.  From what I have read, Krugman follows Greenspan on the  
topic.  He is wrong also.

A leading modern proponent of Schumpeter's approach is Carlota Perez.   
Being Venezuealan and working in the UK, perhaps she doesn't care so  
much about winning prizes.

In her 2002 book "Technological Revolutions and Financial Capital" and  
follow-on essays, she correctly identified the Internet Bubble as the  
latest in a series of similiar cyclical events over 200 years and  
predicted that another more severe collapse was coming to "complete"  
the pattern.  She was right.  Krugman etal were wrong.

Perhaps the crucial news from this -- apart from being able to skip  
Krugman columns -- is that we are now entering the *inevitable* next  
phase in global industrial development.  Carlota calls it Synergy.

She's correct and there is much we can learn from studying her work.

Mark Stahlman
New York City




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