Harold Meyerson writes in the Washington Post (free registration required) that “the problem with contemporary economics, at least with the purer strain of free-market economics associated with the University of Chicago, is not simply that it failed to predict the near-collapse of the world financial system last year. The problem is that it believed such a collapse could not happen, that all risk could be quantified by mathematical models and that these quantifications could help us correctly price just about everything.” Harold, I think I know an even purer strain, and one that did predict these problems, but I’ll leave you to your Orwellian exercise.
Then this: “…there really was no need to study such things as bubbles, which only a handful of skeptics and hopelessly retro Keynesians even considered possible. Under mainstream economic theory, which held that everything was correctly priced, bubbles simply couldn’t exist.” Which “handful of skeptics” would that be, Harry?
“The one economist who has emerged from the current troubles with his reputation not only intact but enhanced is, of course, Keynes.” Well, “of course”!
(Thanks to Timothy Geraghty.)