Yeah, I thought of another couple of analogies since: 1. A "new economic paradigm" would be like getting a dead man a new pair of shoes.
2. The Hell's Angels need a new code of personal conduct. On Fri, Aug 20, 2010 at 1:03 PM, Arthur Cordell <[email protected]>wrote: > Click on > > > Stiglitz: Needed: a New Economic > Paradigm<http://feedproxy.google.com/%7Er/EconomistsView/%7E3/_qDSbjSUq2Q/stiglitz-needed-a-new-economic-paradigm.html> > > > > To get to the comments. > > > > > > *From:* [email protected] [mailto: > [email protected]] *On Behalf Of *Michael Gurstein > *Sent:* Friday, August 20, 2010 1:12 PM > *To:* 'RE-DESIGNING WORK, INCOME DISTRIBUTION, EDUCATION' > *Subject:* [Futurework] FW: [p2p-research] Stiglitz: Needed: a New > Economic Paradigm > > > > Note the comments that follow... (and our very own "Sandwichman" is the > first in the queue ;-) > > > > M > > > > -----Original Message----- > *From:* [email protected] [mailto: > [email protected]] *On Behalf Of *Ryan > *Sent:* Friday, August 20, 2010 9:03 AM > *To:* Peer-To-Peer Research List > *Subject:* [p2p-research] Stiglitz: Needed: a New Economic Paradigm > > > > > Sent to you by Ryan via Google Reader: > > > > > Stiglitz: Needed: a New Economic > Paradigm<http://feedproxy.google.com/%7Er/EconomistsView/%7E3/_qDSbjSUq2Q/stiglitz-needed-a-new-economic-paradigm.html> > > via Economist's View <http://economistsview.typepad.com/economistsview/>by > Mark Thoma on 19/08/10 > > > > Joseph Stiglitz says adding bells and whistles to the current vintage of > macroeconomic models will not fix what is wrong with them, "Nothing less > than a paradigm shift will do": > > Needed: a new economic paradigm, by By Joseph Stiglitz, Comentary, > Financial > Times<http://www.ft.com/cms/s/0/d5108f90-abc2-11df-9f02-00144feabdc0.html>: > The blame game continues over who is responsible for the worst recession > since the Great Depression – the financiers who did such a bad job of > managing risk or the regulators who failed to stop them. But the economics > profession bears more than a little culpability. It provided the models that > gave comfort to regulators that markets could be self-regulated; that they > were efficient and self-correcting. The efficient markets hypothesis ... > ruled the day. Today, not only is our economy in a shambles but so too is > the economic paradigm that predominated in the years before the crisis – or > at least it should be. > > It is hard for non-economists to understand how peculiar the predominant > macroeconomic models were. Many assumed demand had to equal supply – and > that meant there could be no unemployment. (Right now a lot of people are > just enjoying an extra dose of leisure; why they are unhappy is a matter for > psychiatry, not economics.) Many used “representative agent models” – all > individuals were assumed to be identical, and this meant there could be no > meaningful financial markets (who would be lending money to whom?). > Information asymmetries, the cornerstone of modern economics, also had no > place: they could arise only if individuals suffered from acute > schizophrenia, an assumption incompatible with another of the favored > assumptions, full rationality. > > Bad models lead to bad policy: central banks, for instance, focused on > the small economic inefficiencies arising from inflation, to the exclusion > of the far, far greater inefficiencies arising from dysfunctional financial > markets and asset price bubbles. After all, their models said that financial > markets were always efficient. Remarkably, standard macroeconomic models did > not even incorporate adequate analyses of banks...: even a cursory look at > the perverse incentives confronting banks and their managers would have > predicted short-sighted behavior with excessive risk-taking. ... > > Fortunately, while much of the mainstream focused on these flawed models, > numerous researchers were engaged in developing alternative approaches. ... > With a few exceptions, most central banks paid little attention to systemic > risk and the risks posed by credit interlinkages. Years before the crisis, a > few researchers focused on these issues, including the possibility of the > bankruptcy cascades that were to play out in such an important way in the > crisis. This is an example of the importance of modeling carefully complex > interactions among economic agents (households, companies, banks) – > interactions that cannot be studied in models in which everyone is assumed > to be the same. Even the sacrosanct assumption of rationality has been > attacked: there are systemic deviations from rationality and consequences > for macroeconomic behavior that need to be explored. > > Changing paradigms is not easy. Too many have invested too much in the > wrong models. Like the Ptolemaic attempts to preserve earth-centric views of > the universe, there will be heroic efforts to add complexities and > refinements to the standard paradigm. The resulting models will be an > improvement and policies based on them may do better, but they too are > likely to fail. Nothing less than a paradigm shift will do. > > But a new paradigm, I believe, is within our grasp... What is at stake, > of course, is more than just the credibility of the economics profession or > that of the policymakers who rely on their ideas: it is the stability and > prosperity of our economies. > > > > > > > Things you can do from here: > > - Subscribe to Economist's > View<http://www.google.com/reader/view/feed%2Fhttp%3A%2F%2Feconomistsview.typepad.com%2Feconomistsview%2Fatom.xml?source=email>using > *Google Reader* > - Get started using Google > Reader<http://www.google.com/reader/?source=email>to easily keep up with > *all your favourite sites* > > > > > > _______________________________________________ > Futurework mailing list > [email protected] > https://lists.uwaterloo.ca/mailman/listinfo/futurework > > -- Sandwichman
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