Saturday, August 15, 2009

In November 2008 the Queen asked why so few Economists had foreseen the credit crunch.

'Ten leading British Economists write to Her Majesty, claiming that the training of economists is too narrow: “Mathematical technique should not dominate real-world substance.”

During a visit to the London School of Economics in November 2008, the Queen asked why few economists had foreseen the credit crunch. Dated 22 July 2009, she received an answer from Professors Tim Besley and Peter Hennessy. This was widely quoted in the British press.

Ten leading British economists – including academics from top universities, three Academicians of the Academy of Social Sciences, academic journal editors, a former member of the Monopolies and Mergers Commission and the Chief Economic Advisor the Greater London Authority – have responded by writing their own response to the Queen. They note that the letter by Professors Besley and Hennessy fails to consider any deficiency in the training of economists themselves.

Following similar complaints by Nobel Laureates Ronald Coase, Wassily Leontief and Milton Friedman, the ten economists argue that economists has become largely transformed into a branch of applied mathematics, with little contact with the real world. The letter by Professors Besley and Hennessy does not consider how the preference for mathematical technique over real-world substance diverted many economists from looking at the whole picture.

The ten economists uphold that the narrow training of economists – which concentrates on mathematical techniques and the building of empirically uncontrolled formal models – has been a major reason for the failure of the economics profession to give adequate warnings of the economic crises in 2007 and 2008.

The ten signatories also point out that while Professors Besley and Hennessy complain that economists have become overly ‘charmed by the market’, they mention neither the highly questionable belief in universal ‘rationality’ nor the ‘efficient markets hypothesis’, which are both widely taught and promoted by mainstream economists.

The ten economists call for a broader training of economists, involving allied disciplines such as psychology and economic history, as well as mathematics.'

Sigantories to this letter included at least three Australians - Peter E. Earl, Associate Professor of Economics, University of Queensland, Australia, and author of Business Economics: A Contemporary Approach, John Foster, Professor of Economics, University of Queensland, Fellow of the Academy of the Social Sciences in Australia and President Elect of the International J. A. Schumpeter Society and Geoffrey C. Harcourt, Emeritus Reader, University of Cambridge, Emeritus Professor, University of Adelaide, Academician of the Academy of Social Sciences, Fellow of the Academy of the Social Sciences in Australia.