[From Rick Marken (2001.08.27.0850)]
Bill Williams (Sunday 26 August 2001 18:30 CST)
In the attached file there is "An International Open Letter to All
Economics Departments: An Invitation for Reconsideration" which
requests that economics departments reconsider their narrow orthodox
approach to economic questions by adopting a more open, pluralistic
methodology
The only explanation I see in the "Open Letter" for _why_ economics
departments should reconsider their approach is the following:
we believe that economic theory, inhibited by its ahistorical approach
and abstract formalist methodology, has provided only a limited
understanding of the challenging complexity of economic behavior.
This doesn't strike me as a particularly convincing argument.
I think what economic theory needs is to become scientific. This means
economists should start developing their theories as _working models_ of
economic phenomena and test these models against actual data. Working
models are quite different than the descriptive equations that pass for
theories in economics these days. Once there is even _one_ such working
model of the economy, then there will be a scientific basis for
"inviting reconsideration" of this model: reconsideration that will be
based on the model's fit (or lack thereof) to actual data.
While we're on the topic of economics, I would like to remind people of
my pre-Bush prediction of a recession if the promised, highly regressive
(leakage producing) tax cut were passed. Well, the tax cut has been
passed and I continue to predict a solid recession by mid 2002, when the
tax cut for the rich (and the resulting leakage) kicks in full tilt. The
current economic "downturn" is, I predict, nothing compared to what we
will see in about a year. This future downturn could be mitigated by
government deficit spending but Bush has said he will hold the line on
spending increases (and, of course, maintain the tax cut) so I predict
negative growth and unemployment increasing through 2002 and beyond.
Greenspan has also been kind enough to test the effects of discount
rates on growth and inflation. As expected (by me, based on leakage
theory) continued decreases in discount rates (increases in money
supply) don't increase inflation. Indeed, they seem to bring inflation
down (there are even some signs of _deflation_ in some sectors).
Moreover, continued decreases in the discount rate have _not_ increased
growth rate (as expected by conventional economists, like Greenspan).
This was also expected (by me) because the _data_ show that there is
absolutely _no_ historical relationship between discount rate and growth
rate.
There was a front page story in the LA Times today saying that many
economists see "signs of hope" in the economy. All these economists
seemed to think that the tax cut was going to help with the recovery.
Given the pain that results from hard economic times (for the most
vulnerable members of a society -- children, the elderly, the
handicapped, the poor -- that is, the people who Bush does _not_
represent) let's hope these economists are right and that the tax cut
based boom of 2002 sends me back to the drawing board.
Best regards
Rick
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Richard S. Marken, Ph.D.
MindReadings.com
10459 Holman Ave
Los Angeles, CA 90024
Tel: 310-474-0313
E-mail: marken@mindreadings.com