In the most recent edition of the Harvard Journal of Law and Public Policy, Acton’s Research Director Samuel Gregg has an article in which he argues that the ongoing financial and economic crisis has raised serious questions about the credibility and usefulness of much mainstream contemporary economics. Drawing partly on his recent book, Wilhelm Röpke’s Political Economy (2010), Gregg suggests that much mainstream economics after Keynes became gradually dominated by a fixation upon econometrics that has threatened at times to reduce economics to a poor cousin of mathematics. As Gregg writes:

Read more on Adam Smith versus John Maynard Keynes…

In this week’s Acton Commentary, I review a new book by economist Joseph E. Stiglitz, Freefall: America, Free Markets, and the Sinking of the World Economy. Text follows:

A rare growth industry following the 2008 financial crisis has been financial crisis commentaries. An apparently endless stream of books and articles from assorted pundits and scholars continues to explain what went wrong and how to fix our present problems.

In this context, it was almost inevitable that one Joseph E. Stiglitz would enter the fray of finger-pointing and policy-offerings. As a Nobel Prize economist, former World Bank chief economist, former Chairman of the President’s Council of Economic Advisors, and member of the Pontifical Academy of Social Sciences, it would be surprising if he had nothing to say.

Moreover Stiglitz has assumed the role of social-democrat-public-intellectual-in-chief since his door-slamming departure from the World Bank in 1999. From this standpoint, Stiglitz opines about, well, pretty much everything. He also increasingly labels anyone disagreeing with him as a “market fundamentalist” or “conservative journalist.”

Yet despite his iconoclastic reputation, Stiglitz reveals himself in his latest offering, Freefall: America, Free Markets, and the Sinking of the World Economy, as a rather conventional Keynesian-inclined economist who, like most Keynesian-inclined economists, thinks everything went wrong in the early 1980s. Read more on Joseph E. Stiglitz: An Economist in Freefall…

From Econstories.tv: In Fear the Boom and Bust, John Maynard Keynes and F. A. Hayek, two of the great economists of the 20th century, come back to life to attend an economics conference on the economic crisis. Before the conference begins, and at the insistence of Lord Keynes, they go out for a night on the town and sing about why there’s a “boom and bust” cycle in modern economies and good reason to fear it.

Read more on Fear the Boom and Bust — rappin’ with Hayek and Keynes…

The Public Discourse recently published my article, Rethinking Economics in the Post-Crisis World. Text follows:

In the wake of the financial crisis, we need an economics with greater humility about its predictive power and an increased understanding of the complicated human beings who, when the discipline is rightly understood, lie at its center.

Apart from bankers and politicians, few groups have received as much blame for the 2008 financial crisis as economists. “Economists are the forgotten guilty men” was how Anatole Kaletsky, former economics editor and current editor-at-large for the London Times, put it earlier this year when explaining why “a bank with just $1 billion of capital [would] borrow an extra $99 billion and then buy $100 billion of speculative investments.”

Greed and sheer imprudence played a role, but so too, Kaletsky argued, did those (unnamed) economists who posited that their models proved that events such as the collapse of Lehmann Brothers in 2008 or Long Term Capital Management in 1998 were mathematically likely to happen once every billion years.

Kaletsky’s broader point was that contemporary mainstream economics had been sufficiently discredited by the financial crisis that the entire discipline required what he called an “intellectual revolution,” or it risked being dismissed as a rather suspect sub-branch of statistical analysis and mathematical modeling.

Kaletsky is hardly alone in arguing that economists need to rethink key aspects of their discipline. Though unwilling to call for a total paradigm shift, the Economist recently opined that the financial crisis has raised profound questions of coherence about two areas of economics: macro-economics and financial economics. “Few financial economists,” the Economist observed, “thought much about illiquidity or counterparty risk, for instance, because their standard models ignore it.” Likewise, the Economist commented, “Macroeconomists also had a blindspot: their standard models assumed that capital markets work perfectly.”

All this is certainly true. But the key expression to note here is “their standard models.” Read more on Public Discourse: Rethinking Economics in the Post-Crisis World…

Acton’s Sam Gregg on Public Discourse:

On November 15th, leaders of the world’s largest economies will gather in Washington, D.C., to discuss the ongoing international financial crisis. Figures such as Britain’s Prime Minister Gordon Brown view the summit as an opportunity to reform international financial structures and perhaps create new ones. He and others have spoken of a “new Bretton Woods”—the 1944 international meeting that sought to design an international financial structure for a post-war world.

Read more on No More Bretton Woods…