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Thursday 3 December 2009

I have problems with modern, accepted economic theory. It smacks of religion and not science, and that’s a problem for decision making. Some of my gripes: It has failed to deliver predictive results, as we saw with the financial meltdown. Worse, it has problems explaining historical results: It can’t explain why western economies haven’t delivered any improvements to middle class incomes in three decades, despite rapidly rising productivity and growing GDP. It can’t explain the rise of Wall Street, the ongoing rush of assets bubbles, and our current ziggurat of debt. It can’t even explain why “free trade” works, for anyone but the low wage provider, in a world where all evidence points to the fact that information technology makes productivity hyper-portable. Some effort to paper over this failure (in prediction) has been undertaken by followers of the Austrian school of economics, but that explanation is too narrow (it merely describes why the financial pneumonia killed you and not the economic AIDS that made you vulnerable). John Robb

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