Although economists have much to learn from this crisis, as I will discuss, I think that calls for a radical reworking of the field go too far. In particular, it seems to me that current critiques of economics sometimes conflate three overlapping yet separate enterprises, which, for the purposes of my remarks today, I will call economic science, economic engineering, and economic management. Economic science concerns itself primarily with theoretical and empirical generalizations about the behavior of individuals, institutions, markets, and national economies. Most academic research falls in this category. Economic engineering is about the design and analysis of frameworks for achieving specific economic objectives. Examples of such frameworks are the risk-management systems of financial institutions and the financial regulatory systems of the United States and other countries. Economic management involves the operation of economic frameworks in real time--for example, in the private sector, the management of complex financial institutions or, in the public sector, the day-to-day supervision of those institutions.For me I think someone should point out to Ben that the public sector cannot carryout the real time, day-to-day supervision of financial institutions and in trying may well cause more problems than they solve. Did Hayek not point out the important of knowledge of time and place, knowledge that central planners and regulators just can get. Without it regulators cannot regulate.
Monday, 27 September 2010
Bernanke on "Implications of the Financial Crisis for Economics"
Ben S. Bernanke gave a speech on the "Implications of the Financial Crisis for Economics" at Princeton. In it he said,