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Economist Caused the 2008 Meltdown

Posted by Steve Markowitz on January 9, 2014

For readers interested in reality economics we recommend reading the postings of John Mauldin.  John gets it and shares his broad economic knowledge weekly in a newsletter.

This week’s Outside the Box is titled Knowledge and Power and includes a few chapters from George Gilder’s book, Knowledge and Power.  These chapters go a long way in explaining the flaws in logic used by economists in not only predicting future economic activity, but also their rather lame attempts to control (“fix”) the economy.  A particularly interesting quote is including below as a teaser.

Remarkably, we continue to allow those that created the ongoing economic mess to experiment with still further market interventions and expect better results in the future.

The late financial crisis was perhaps the first in history actually to be caused by economists. Entranced by statistical models, they ignored the larger dimensions of human creativity and freedom. To cite an obvious example, “structured finance”—the conglomerations of thousands of dubious mortgages diced and sliced and recombined and all trebly insured against failure—was supposed to eliminate the surprise of mortgage defaults. The mortgage defaults that came anyway and triggered the collapse came not from the aggregate inability of debtors to pay as calculated by the economists, but from the free acts of home buyers. Having bet on constantly rising home prices, they simply folded their hands and walked away when the value of their houses collapsed. The bankers had accounted for everything but free will.


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