If Dante Alighieri were alive today, I wonder to which circle of Hell he would consign neo-liberal economists. In the ninth Bolgia of the Eighth Circle - just next to the Ninth Circle, in which the most evil people are found, the "giant sinners" of the Bible, such as Judas, with Satan himself at the very center - Dante stuck the "evil counselors." But these were people who encouraged others to commit fraud, not people who gave bad advice. In the tenth, final Bolgia of the Eighth Circle, Dante placed various "falsifiers" such as alchemists, counterfeiters, perjurers, and impostors. Because these people are, according to Dante, a "disease on society," they are horribly afflicted with various disfiguring diseases.
Since neo-liberal economists combine all these sins in one neat package -- their mathematically modeled theories of the economy amount to so much alchemy; some have been caught counterfeiting data and research, such as Reinhart and Rogoff; some, like Glenn Hubbard, have perjured themselves in court; and then there is Alan Greenspan, who was forced to basically admit, in Congressional testimony no less, that he was an imposter, after his theories helped blow up the world economy -- I suspect that Dante would have created an eleventh Bolgia as a sort of bridge to the Ninth, the last, the deepest, most wretched circle of Hell, for neo-liberal economists. That would place neo-liberal economists as pretty much the most evil people in history, after the inmates of the Ninth Circle.
One of the most evil of these evil neo-liberal economists has got to be Eugene Fama - though perhaps the (dis)honor should go to former top Bush Jr. economist H. Greg Mankiw, whose moral bearings and sense of propriety are so utterly lacking that he actually wrote, just this past June (almost two full years after Occupy) Defending the One Percent.
What makes Fama so evil? Well, he has been unceasing in his defense of the "efficient market hypothesis," the neo-liberal economics theory that "the markets" are all-knowing and all-wise, and, being all-knowing and all-wise, the destinies of nations should be left to the wisdom of "the markets" and government must be prevented from interfering with the wise, immutable, and inscrutable workings of "the markets." The market crash of 2007-2008, of course, showed all but the most hard-core neo-liberals that the efficient market hypothesis (EMH), shall we say, has a few flaws. But, you see, Fama made his fame and fortune promulgating EMH, so he has a vested interest in making sure it does not eventually come to be seen as the fraud it is. (I - and others - would even argue that EMH is a blasphemy, because it attributes to "the markets" all the attributes of omniscience, omnipresence, and omnipotence all religions have traditionally ascribed to deities.)
So, of course, the Riksbank of Sweden decided to give Fama a Nobel Prize for economics this year.
More below the jump...
masaccio at FireDogLake performs a perfect set-up and take-down of Fama by excerpting from a January 2010 interview of Fama by New Yorker writer John Cassidy (this was the interview, by the way, that led to the series of posts by Paul Krugman blasting Fama and EMH). Fama asserted that "the markets" accurately forecast the financial crash because prices of stocks and other financial instruments were declining. All masaccio had to do was post two charts of the Down Jones Industrials Average and the Standard and Poor's 500 Stock Index to show that Fama is either a complete idiot, or an accomplished liar.
Since Fama can do complex math, and teaches at the University of Chicago Booth School of Business, I think we can narrow down our choices by setting aside "complete idiot."
Fama's Nobel has provoked some quite informative writing disparaging neo-liberal economics, though much too politely for my liking. Brad DeLong has reposted some of the stupid things Fama has said or written over the years (you will have to do search for "Fama" on DeLong's website to find them), such as fretting that the bailout of the auto industry would require a growth in government debt that would "crowd out" other, potentially more useful investment. This when we were dealing with a shortfall in national output of six or seven percent.
But I think the best summary of Fama getting a Nobel for economics is by Jon Larson, my partner at Real Economics. As usual, Jon is short, pithy, and concise:
Considering the almost never-ending list of major economic catastrophes that afflict the planet, it would seem that the Riksbank Prize (Nobel) committee should consider suspending their award out of sheer embarrassment. I mean, what exactly must go further wrong before they decide that maybe, just maybe, the folks they have been giving the prizes to are crazy.UPDATE:
Well, it didn't happen this year. They managed to find some more neoliberal crackpots that have managed to hide their bullshit beneath some fancy-sounding theories and good-looking math. This is apparently enough (according to the Riksbank jurors) to make folks forget that their economics will lead to neofeudalism, slavery, child labor, massive unemployment, environmental catastrophes and the rest of lovely manifestations of backward economic thinking.
The whole Riksbank / Nobel charade was designed to single out economics as somehow more scientific than the rest of the social sciences. This is clearly a lie—real science recognizes errors and seeks to correct them. This is why science makes progress while other form of thinking do not. How any thinking that deliberately seeks to bring back 19th century capitalism can been considered scientific is a mystery. But then, the Riksbank Prize isn't designed to reward scientific progress—it is designed to put a "scientific" gloss on some ugly and evil ideology. The prizes of 2013 do just that.
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 dispute 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 The 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.