Crisis forces dismal science to get real

– Just a few days ago, I wrote about an article that appeared in the Wall Street Journal’s Market Watch section.   This article, acknowledged what I think is a deep and unavoidable truth about the world.  And that is that all our economies are based on models that insist on indefinite growth for the model to succeed.

– And, I said, any eight year-old knows that you cannot go on creating more and more stuff on a stage of finte size.  Common sense tells you the stagewill fill up and you will come to the end-game.

– So here we have an article about an ongoing deep angst in the world of economists about how their models are failing to predict the ups and downs of the world’s economy.   Hand wringing and questions about the deep assumptions being taught at the various schools of economics abound.

– And not one WORD about the most fundamental issue of all.   That ALL their models depend on indefinite growth to succeed and that this is just impossible.   Give me strength!

– Dennis

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As economics teachers struggle to make sense of a post-crisis world, they may have an unlikely army of helpers: ants.

In September 2008, the same month that Lehman Brothers collapsed, the Argentinian ants became the unwitting stars of a German television show that set out to illustrate collective efficiency. To the frustration of the show’s producers, the insects ended up showing how easily rational expectations can go awry.

The ants – Linepithema humile – had a choice between a long route and a short one to get to a pile of food. In theory, their chemical communication and millions of years of evolution should have led them to work out the short route.

They chose the long one, and most kept using it even though some had found the shorter path. “The Germans were furious,” said economics professor Alan Kirman, whose neuroscientist friend and colleague Guy Theraulaz ran the experiments in the south of France.

Kirman, professor emeritus at Aix Marseille University and France’s Ecole des Hautes Etudes en Sciences Sociales, has started to use the footage in a talk he gives about modern economic thinking. The insects were far from efficient, he said, but reached their goal in the end.

“I think the economy is a lot like that.”

There lies a hint of the revolution that is building at the heart of academic economics, particularly in Europe.

As the euro zone crisis deepens, economists in France, Germany and Italy have been forced to turn away from classroom theories and look at the real world – from insects to financial markets, from banks to brain scans – to better understand what’s going on.

An increasing number of teachers argue that the textbooks, some by experts who didn’t see the crisis coming, are divorced from reality, inconsistent, dull, and, in a crisis that has gripped the globe for more than four years, even dangerous.

“A crisis is a wonderful opportunity in some sense,” said Kirman. “If it weren’t for the fact that millions of people are suffering as a result, what better time to be an economist, because now you can see what’s going wrong with our theory.”

– More…


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