Monday, 5 December 2011

Economics Makes Markets

An absolutely perfect example of how economics makes markets:
Policymakers' riposte to Keynes would be the same as it would be to Hayek: get real. If we take no action to rein in deficits, we will be slaughtered by the markets; bond yields will go up sharply, negating the impact of cheap money. Keynesian fiscal policy, in other words, will only be possible when the markets share Keynes's belief that jobs matter more than the level of national debt, and given the way economics has been taught in universities for the past 30 years, that moment may be a long time coming.
All these years of baseless, absurd, evidence-phobic econo-babble are killing us. And they call it science!

And furthermore:
[Tim Worstall argues] that we should not tackle tax evasion because to do so would reduce GDP. He says the existing rate of evasion is optimal and we should not address it as we are at an equilibrium state where we can afford this level of crime.
...
I utterly reject that argument.
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There [are] no such equilibria. What there are instead are economists and those influenced by them like Worstall who believe in cost-benefit analyses that suggest there are such equilibria. But because they have believed that for so long they now actually think the equilibria exist and that we should positively promote them. They have made their model into the terrain – when it is at best a very imperfect model to start with. That explains so much of the predicament we are in. We are seeking something that is simply not there.

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