Wednesday, December 28, 2011

A Wild Austrian Economist Appears!!

The following is from a recent article in The Economist lamenting the travails of modern economic theory (whatever that is) and a worthy group of upstart challengers. The article concludes thusly:

The bygone and the marginalised always look strange. But would it not also be strange to imagine that, in 30 or 50 years, economic historians will look back on the current crisis and say that mainstream macroeconomics offered the best analysis and prescriptions that could have been conceived? If they agree that it did not, then there seems a chance that they will think perspectives outside the mainstream might have helped.

Decades ago macroeconomics resembled an “intellectual witch’s brew”, according to Olivier Blanchard, chief economist of the International Monetary Fund. It contained “many ingredients, some of them exotic—many insights, but also a great deal of confusion”. Things then became more rigorous and refined: disagreements remained, but within set limits. Now, on the blogs, the economic conversation boils and bubbles again. That ferment is surely spreading into the academy—and in time some new quintessence will be brought forth, perhaps from materials now considered base.

This "quintessence" (like some sort of 5th element shipped via UPS from Mt. Olympus) is a fiction. Economics is a historical construct that is inextricably linked to contextual events, each dependent upon the actions of millions of humans (and in some cases, the actions of a very few of them). So there will be no Great Synthesis ready to take its rightful place among the objective sciences. Business cycle theory applies equally to the academic discipline of Economics as well. Influence is achieved, prescriptions made, failure is inevitable, and challengers appear in the firmament to begin the cycle anew, with the next generation of adherents ready for battle.

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