Tuesday, 17 January 2012

Ground zero in junk economics [updated]

M.I.T. is a world leading university.

And no, Virginia, I’m not talking about the low-rent second-rate impostor out in Otara. I’m talking about the prestigious Massachusetts Institute of Technology in Cambridge, Massachusetts. The world-leading M.I.T.

The world-leading M.I.T. has a tale to tell that illustrates again the power of ideas to move the world, for good and for bad.

It has produced some 76 Nobel laureates, and around one-third of US astronauts, including Buzz Aldrin. It has been home to some stellar physicists, such as Richard Feynman and Murray Gell-Mann. To some explosive chemists. It’s mathematicians are as adept as their stories (John Nash) are Oscar-winning.

M.I.T. has produced some of the world’s leading hard scientists.

In economics however the story is both the same and very different.  Sure, its economics graduates are everywhere—but given the catastrophe they produced in recent years (and are continuing to produce) I don’t mean that in a good way. 

Central banking is filled with former attendees of the Cambridge, Massachusetts, university … At MIT, [Bank of England Governor Mervyn] King, 63, and then-professor Ben S. Bernanke, 58, had adjoining offices in 1983, spending the early days of their academic careers in an environment where economics was viewed as a tool to set policy. Earlier, Bernanke [now head of the US Federal Reserve] and European Central Bank President Mario Draghi, 64, earned their doctorates from the university in the late 1970s, Draghi with a thesis entitled “Essays on Economic Theory and Applications.”
    [Bank of Israel Governor Stanley] Fischer, 68, advised Bernanke’s thesis on “Long-Term Commitments, Dynamic Optimization and the Business Cycle,” and taught Draghi. Greek Prime Minister and former ECB vice president Lucas Papademos and Olivier Blanchard, now chief economist for the International Monetary Fund in Washington, earned their doctorates from MIT at about the same time.
    Other monetary policy makers who have passed through MIT’s doors include Athanasios Orphanides, head of the Central Bank of Cyprus, Duvvuri Subbarao, governor of the Reserve Bank of India and Charles Bean, King’s deputy in the U.K.

Not to mention Paul Samuelson, the writer of the textbook schooled modern Americans in the complex wrongheadedness of the Keynesian disease; New York Times columnist Paul Krugman, the man with more all-round wrongheaded advice than Mr Keynes on speed; Lawrence Summers, adviser to both Obama and Bill Clinton; and Christine Romer, head of Obama’s Council of Economic Advisers.

These are the people who define “mainstream economics”—the very “macroeconomic” theories that got us into the hole.

Their advice, then and now, is to keep digging.

Given the results of its graduates then, by which I mean the state of the world today, its clear that while M.I.T.’s hard sciences departments should be lauded for their graduates’ achievements, its economics degrees are as much a piece of junk as the bonds still being peddled by European governments.

[Hat tip Tyler Cowen. Arnold Kling comments.]

UPDATE: Peter Boettke suggests, with a bit of nudging, that one primary difference between mainstream economics and Austrian economics is that  mainstream theory “can’t handle the complexities of the real world…”

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