Flawed Economics

One of the more interesting articles from class in my opinion was Paul Krugman’s article “How Did Economists Get It So Wrong?”  In the article, Krugman asserts that the biggest blunder economists made prior to the economic collapse in 2008 was that they “mistook beauty, clad in impressive-looking mathematics, for truth,” and I completely agree.  Economists believed that they had the global economy figured out and that its movements could be predicted with these ingenious models they love so much.  these models are based on the assumptions that the market was made up of rational people and they always got the stock prices just right.  As an engineering student, we have been told numerous times that our equations and work are only as good as the assumptions we make.  The same holds true in economics.  The all powerful models and equations were based on assumptions that were not correct 100% of the time and as a result hardly anyone had a clue that the largest economic collapse since the Great Depression was just around the corner.  Hopefully, in the future economists will stop blindly following their flawed mathematics and open their eyes to the reality of the market.

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One Response to Flawed Economics

  1. tpm011 says:

    I find it interesting that economics (as far as i know) is the only place where if theory and the real world don’t match up, its the real world that has it wrong. Instead of using theory to explain what is actually happening (which i find impossible given to many variables) Economists just make their assumptions wider.

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