In my diary on the latest awarding of the Nobel Prize for Economics, a few commenters argue that I am attacking all economists or the entire economics profession.
I am not.
I was at pains to copy and paste "neo-liberal" before each time I used the words "economist" or "economics." My focus was on - and was intended to be on - Eugene Fama, not the other two economists who were given the Riksbank (Nobel) prize along with Fama.
A few commenters (pretty much the same bunch, it appears) - also condemn my derision toward neo-liberal economists' pretensions to be engaged in "science." A standard retort to these commenters is: "Did you or your guys foresee the financial collapse?"
Now, that is a good enough retort, but I think there is an even better test, which I will present shortly. Right now, I want to call attention to Fama's absurd reply to this question in his reply to Cassidy's question:
O.K., right. Here’s a question to turn it around. Can you have a bubble in all asset markets at the same time? Does that make any sense at all? Maybe it does in somebody’s view of the world, but I have a real problem with that. Maybe you can convince me there can be bubbles in individual securities. It’s a tougher story to tell me there’s a bubble in a whole sector of the market, if there isn’t something artificial going on. When you start telling me there’s a bubble in all markets, I don’t even know what that means. Now we are talking about saving equals investment. You are basically telling me people are saving too much, and I don’t know what to make of that.Now, this is a very interesting answer by Fama, because it leads directly to the (what I consider) devastating critique of neo-liberal economics as being an apologia for a status quo dominated by plutocrats and oligarchs. There is a simple reason why there can be, have been, and are "bubble[s] in a whole sector[s] of the market." And it is not the reason of the Federal Reserve pouring trillions of dollars into financial markets to prevent another collapse in prices of financial assets. That is certainly happening, but this, as a specific reason, could be categorized by Fama and neo-liberals as an "artificial" interference with the market.
The simple reason is people in fact "are saving too much" - but you have to preface "people" with "rich" to get at what's going on. As I explained in my February 2013 post, Why the rich act the way they do, America's plutocratic leaders and elites are NOT investing in the development of new productive capabilities. The data clearly show that the United States economy is being de-industrialized and de-capitalized, and has been for decades. That's because plutocrats / oligarchs actually don't have the stomach to engage in management of advanced industrial enterprises (see Veblen's 1921The Engineers and the Price System for a detailed discussion of this point - warning: PDF file). Plutocrats / oligarchs more typically engage in usury, speculation, and economic-rent seeking behavior. And it is these practices of usury, speculation, and economic-rent seeking behavior that cause gross mis-allocations of credit and money in the economy that result in speculative bubbles.
And since the speculative bubbles are caused by the behavior of plutocrats / oligarchs, it is obviously not in the interests of neo-liberal economists to admit that there are speculative bubbles, let alone attempt to explore their causes.
Now, to what I consider a better question than: "Did you or your guys foresee the financial collapse?" How about we begin asking economists "Did you foresee and warn that NAFTA and GATT would cause a race to the bottom and help cause the destruction of America's working and middle classes?" There were economists who warned about that; Thomas Palley comes immediately to mind. How an economist answers this question about free trade will go a long way in separating the real economists from the neo-liberals.