An economist is walking down the street with a friend.
The friend stops and says “Hey look, a $20 bill on the ground!”
The economist coolly replies “Can’t be. If there was a $20 bill on the ground someone would have picked it up by now.”
That old joke pretty much describes the current mindset of orthodox economics in U.S. academia despite the current global financial meltdown, as nicely described in the NYT article below.
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Ivory Tower Unswayed by Crashing Economy
By PATRICIA COHEN
For years economists who have challenged free market theory have been the Rodney Dangerfields of the profession. Often ignored or belittled because they questioned the orthodoxy, they say, they have been shut out of many economics departments and the most prestigious economics journals. They got no respect.
That was before last fall’s crash took the economics establishment by surprise. Since then the former Federal Reserve chairman Alan Greenspan has admitted that he was shocked to discover a flaw in the free market model and has even begun talking about temporarily nationalizing some banks. A Newsweek cover last month declared, “We Are All Socialists Now.” And at the latest annual meeting of the American Economic Association, Janet Yellen, president of the Federal Reserve Bank of San Francisco, said, “The new enthusiasm for fiscal stimulus, and particularly government spending, represents a huge evolution in mainstream thinking.”
Yet prominent economics professors say their academic discipline isn’t shifting nearly as much as some people might think. Free market theory, mathematical models and hostility to government regulation still reign in most economics departments at colleges and universities around the country. True, some new approaches have been explored in recent years, particularly by behavioral economists who argue that human psychology is a crucial element in economic decision making. But the belief that people make rational economic decisions and the market automatically adjusts to respond to them still prevails.
Read the full article here.