Thursday, January 20, 2011, 6:04 PM
In a different time we could happily go about our lives, ignoring economists as largely irrelevant to our daily lives. That is no longer the case.
In helping to shape central bank policies, economists are performing one of the largest social and monetary experiments in all of history, and its outcome, good or bad, will shape all of our lives enormously over the coming years. In fact, this experiment is already well underway and yielding results. Perhaps not the desired results, but results nonetheless.
The biggest problem with most, but not all, economists is that their theories are founded on incorrect assumptions.
This biggest of them all is assuming that the economy has some sort of an 'equilibrium point,' a magic place where just the right number of monetary actions and policies will create high jobs, price stability, and economic growth.
Unfortunately, this is just completely the wrong way to look at things.
Niall Ferguson recently pointed this out and made a critically important point:
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