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Get a Grounding in Reality-Based Economics

Submitted by HPI on Mon, 07/30/2012 - 01:05

HPI note: Former Assistant Treasury Secretary Paul Craig Roberts, known as the father of supply side economics, says that economics as taught in the universities and practiced in DC is outdated and is still carrying some of the wrong assumptions it started out with. Anyone who's paid attention to economists' predictions know that they're wrong a lot, but economists are still accorded respect in government circles.

Roberts suggests that we throw off the blinders and get a grounding in more practical economics, suggesting several sources.

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July 29, 2012

By Paul Craig Roberts

Readers ask me from time to time to recommend a book from which they can learn about economics.

The problem with reading a book to learn economics that is taught in the universities and practiced in Washington is that economics is now a highly formalized subject based on abstract models and assumptions and has been mathematized. It is not that the subject is totally useless and without any applicability to real world problems. Rather, the problem is that the discipline both lags an ever-changing world and got some things wrong at the beginning. Consequently, learning economics places one inside a box where some of the tools and understanding provided are outdated and incorrect.

For example, every textbook will draw a picture of agriculture as the perfect example of competitive markets in which “no producer’s output is large enough to affect price.” This made sense when one-third of the US work force was on family farms. Today, American agriculture is dominated by corporations and agribusiness. Additionally, part of the disastrous financial deregulation pushed by no-think economists and special interests was the removal of position limits on speculators. Formerly, speculators smoothed agricultural and commodity markets by buying and selling in order to stabilize price over periods when supply and demand were out of balance. Now speculators can dominate markets and rig prices to the benefit of their profits.

There are many such examples where economics no longer speaks to the real world.

Read more . . .

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