Newsweek has an article about how economics isn’t changing much in response to the crisis. The quote above is from Notre Dame’s own Philip Mirowski, who is no longer in an Economics department, but still an economist. His entire quote serves as a pretty good explanation of why economics isn’t changing:
But one problem is that the economics profession “has gotten much more intolerant of divergence from orthodoxy,” says Philip Mirowski, an economic historian at Notre Dame. “The range in which dissent happens is so narrow. In a sense they still cannot imagine the system can operate to undermine itself. That is not a position that is allowed anywhere in the economics profession. The field got rid of methodological self-criticism. This Great Moderation stuff was just arrogance, hubris.” Indeed, the joke on economists, says one of them, Rob Johnson, is that they create simplistic models that depend on people behaving as rational actors motivated by self-interest, yet “they have a blind spot regarding themselves.” The way they squabble mulishly to defend now-indefensible positions is itself evidence of how flawed those rational-actor models are.
My reaction to the article itself was, “meh.” The problem statement is framed around our financial collapse in 2008:
The most terrifying moment in modern economic history occurred two years ago this month. For several long days after the fall of Lehman Brothers on Sept. 15, 2008, the financial system was in danger of total collapse, and the United States seemed on the precipice of another Great Depression in that “Black September.” Just as bad, our economists and senior policymakers had barely any idea why this was happening.
Someone like Raghu Rajan, I think, comes much closer to identifying the real problems in our economy than the folks with their head stuck in the finance sector. Thus, I disagree with this conclusion:
But the question remains: how should we think about our outsized financial sector now, and how can it be made to serve the larger economy—rather than the other way around?
Finance primacy is certainly a problem, but not “the” problem. This represents a different vein of the narrowness to which Mirowski alludes.