Blame Léon Walras

“Most economists, it seems, believe strongly in their own superior intelligence and take themselves far too seriously. In his open letter of 22 July 2001 to Joseph Stiglitz, Kenneth Rogoff identified this problem. “One of my favourite stories from that era is a lunch with you and our former colleague, Carl Shapiro, at which the two of you started discussing whether Paul Volcker merited your vote for a tenured appointment at Princeton. At one point, you turned to me and said, “Ken, you used to work for Volcker at the Fed. Tell me, is he really smart ?” I responded something to the effect of, “Well, he was arguably the greatest Federal Reserve Chairman of the twentieth century.” To which you replied, “But is he smart like us ?”

 

-       Satyajit Das on Naked Capitalism.

 

 

Satyajit Das in this highly entertaining review of credit crunch literature also quotes US humorist PJ O’Rourke, who described economics as an entire scientific discipline of not knowing what you’re talking about. “One can only quibble with the word ‘scientific’.” Just how did the practice of economics end up in such a dead end ?

One plausible answer arises out of Eric Beinhocker’s outstanding ‘The Origin of Wealth’ (Random House, 2007), which sets out to ask the questions: What is wealth ? How is it created ? How can we create more of it ? In short, blame Léon Walras. In what must surely be the obligatory preparation for becoming an economist, Walras started out by being rejected, twice, from the prestigious Ecole Polytechnique due to poor mathematical skills. He then failed as an engineer, then failed as a novelist. He then spent several years struggling as a newspaper writer and a bank employee. The fact that he was French may not have been an altogether promising attribute either.


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Comments

[Ed Knox]

Sorry I initially posted to wrong article

Dear Tim,

Another erudite and enjoyable piece.

Keep up the good work.

I wonder what damage BP will have done to cautious/pessimistic funds?
Prior to the leak it was big, had low gearing, high fcf and good yield. Classic defensive.....!!

Ed

[timprice]

Cautious, pessimistic, index-trackers and pension funds: they'll all have been affected. In a sense, the Macondo spill serves a useful purpose in reminding people of the risks out there (and not just in investmentland). As Buffett once said: don't invest in stocks at all if you can't cope with a 50% decline in price. But the damage, I fear, has also been stoked by political point-scoring. Watching US politicians jumping onto this bandwagon has been an utterly disillusioning experience. As someone who loathes politicians of all stripes, the coverage and posturing and look-at-me grief of this disaster has been beyond sickening. Evidence also of an increasingly govt-controlled world. Stop the economy, I want to get off.