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The Economy Sinks in a Deep Crisis of Meaning

by Martin Greive Tuesday, Oct. 04, 2011 at 7:23 AM

Economists are compared with astrologers and mocked as crystal-ball readers because they are frequently way off the mark with their growth forecasts. Economists have not learned the great lessons. Mainstream economy entrenched itself behind a model world and often faded out reality.


The guild of economists did not foresee but jointly caused the financial crisis. Whoever criticizes is stylized as a nest polluter

By Martin Greive

[This article published in: Welt Online, 8/30/2011, is translated from the German on the Internet, http://www.welt.de/wirtschaft/article13574206/Die-Oekonomie-stecke-in-einer-tiefen-S. At the protest of globalization critics, young economists and Nobel Prize winners discussed the future of the economy.]

Robert Lucas is a crafty person. In 1995 he received the Nobel Prize for economics for his theory of rational expectations. To even more renown, the 74-year old US economist said economics had solved “the central problem of preventing depressions.” This was one of the greatest errors in the history of economics. He said this in 2003.

Five years later his eyes were opened. The financial crisis brought the world economy to the edge of collapse. The guild of economists was responsible for the debacle. It did not foresee but caused the crisis. “I think modern macro- and financial economics had a substantial share in the crisis,” Thomas Mayer, chief economist of Deutsche Bank, concluded. “Because of the theories, people believed they could calculate the economy and financial risks – and therefore incurred great debts.”

Three years after the start of the economic crash, economics has not learned the great lessons. Instead economics is in a deep crisis of meaning. “The economy is occupied much too little with its own failure. This is disgraceful,” Linz economics professor Friedrich Schneider said.

“Whoever criticizes is regarded as a nest polluter.” That is one reason. Other researchers see advances. “Whoever expected the great revolution may be disappointed. Still the methods of economic research were not basically wrong,” said Clemens Fuest, economics professor in Oxford.

The crisis tarnished the reputation of economists. A whole series of books settles the score with the branch. Politicians are at a loss why economists are needed if they cannot see a crisis coming. Former SPD leader Peter Struck wanted to abolish the council of experts advising the German government on economic questions.

Economists also do not have a good image in the population. According to a study of the University of Koln, their reputation is far behind other vocational groups and hardly above astrologers. Economists are compared with astrologers and mocked as crystal-ball readers – because they are often so wrong with their growth forecasts.

This reproach is often unjustified. Economists could not foresee events like the political unrest in Northern Africa and the nuclear catastrophe in Japan and did not include them in their forecasts.


According to their critics, the problem of the mainstream economy is different. In the last decades, the mainstream economy entrenched itself behind a model world and often faded out reality. “The macro-economic models are largely responsible for the crisis,” says Nobel Prize winner for economics Joseph Stiglitz.

At the meeting of Nobel Prize winners in Lindau in August 2011, Stiglitz declared that no banks exist in the standard model of the central banks. With different assumptions of economic research, Stiglitz denied that market actors are always perfectly informed and that markets functioned efficiently.

At the meeting in Lindau with 17 laureates, Stiglitz was the only one who dared fundamental criticism of his own guild. Many other prize winners hide in the ivory tower. Perhaps because of their age, some top researchers are no longer up-to-date in the actual developments of their discipline.

Strikingly the word “crisis” was seldom heard at the meeting. “Why didn’t the Nobel Prize winners demand an international institute to research the weaknesses of the economy? That would have been a signal,” Schneider said. The professor complained that research had no answers to the many questions. Three could be named: How can institutions solve the European crisis? What goals do politicians pursue in election campaigns? When may a state intervene in exchange turbulences on the market?

Jurgen von Hagen did not want to be left behind. The Bonn economics professor attended the annual meeting of the “Association for Social Policy” where top German economists met in August 2011 in Frankfurt. The criticism that the economy has not realized any advances in the last year and has lost decades disturbs him.

Economists like Keynes, Bagehot and Minsky experience a comeback in the crisis. However they were all researchers and are long dead. “Current research has contributed something to crisis solutions, von Hagen insists.

Germany survived the financial crisis so well because the reforms on the labor market took hold. “We economists emphasized this demand in the last years.” Many economists warned that excessively low interests were a cause of the outbreak of the 2008 crisis. Von Hagen admits the economy must be changed. “The economy is in a critical phase. People expect answers from us. Therefore we must break from old models.”

Research must include the different behavioral models of individuals and the financial sector in the great economic models without being arbitrary. “But setting up such models is hard. We stand at the beginning.” The crisis has shown the importance of good economic research.



The dominant economic theory is largely based on the neoclassical theory. This is complete nonsense. In large part, dominant economic theory is logically incoherent and/or based on absurd assumptions. This “theory” assumes involuntary unemployment and so forth do not exist. Its failure was clear in the Great Depression alias worldwide economic crisis of 1929. It cannot even explain the misery of industrialization and the many early capitalist crises. Strictly speaking, dominant economic theory only serves as the ideological justification of Laissez faire capitalism. That it continues today at the universities of this world is a shame for the whole discipline. Keen’s “Debunking Economics” is recommended reading on this theme. The bad reputation of economists is more than justified. Unfortunately this bad reputation is an understatement.

- Politverdrossen (politically weary)

As long as the masters of the universe earn money, they do not need to know that they live on this earth. If they didn’t earn money, the next war would be on the way. Only capital rules; everything else are lies spoon-fed the common people, the working class – because they will never gain power. Whoever works has no time to become rich.

- Klaus

On account of the theories, people believed the economy and financial risks could be figured out and therefore piled up massive debts.

This statement is breathtakingly daring. The banks incessantly indoctrinate people, firms and states who shou9ld all take credits from them. At last they found the culprits: economic theories. This is like drug dealers blaming medical theories for “consuming too many drugs.”

At least work is involved in the manufacture and distribution of drugs. In contrast, money is conjured by the banks out of thin air (fiat-money, giral money creation) – at the mouse click of a computer.

- Schmittklein

Kondratieff was probably right. There is no more to know. Debts can not be expanded endlessly. Life on credit is immediate shipwreck. Billions of worthless money can be printed without goods or services. The value tends to zero. Heil Bernanke and Trichet, there were never greater villains.




Video: Harvey, David: The Crises of Capitalism


Harvey, David: The Enigma of Capital and the Crisis This Time, 2010


Keen, Steve: Debunking Economics – Predicting the Unpredictable


Keen, Steve: Misunderstanding the Crisis


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