Paul Samuelson had the distinction of writing the economics textbook that was read by more college students than any other economics textbook published before or since. It was the book I studied a half-century ago and it still sells 50,000 copies a year. That is quite a feat for any book, much less a textbook.
He had the ability to translate arcane theory into eminently readable prose that facilitated understanding, at least at the sophomore level. It was surely the elementary economic "bible" for virtually every practicing economist today. That would include a generous handful of Nobel Laureates who trained under Samuelson at M.I.T. Those economists have openly voiced their praise and respect for Mr. Samuelson.
But these are the same economists who, even as they came to study and understand classical economics, even as they introduced more and more mathematical models, even as the Nobel committee devised a new prize, still seem less able than ever to tell us much about the world in which we live.
Nassim Nicholas Taleb wrote what I consider to be the most intellectually provocative books so far this century, The Black Swan: The Impact of the Highly Improbable, in which he suggests that the Nobel prize for economics is a total waste. These are my words, not his, but he suggests that it is just a bunch of academics sitting around a table deciding which of them should receive the award in a given year.
The great body of economists was unable to forecast the stock market crash of 1987, the impact of technology that resulted in the dot-com bubble, or, with a rare exception or two, the housing bubble, and what lay at the end of "High Priest of the Fed" Alan Greenspan's low interest rate, "the market will correct itself" school of thought.
My belief is that the mess we have gotten ourselves into shows, if nothing more, the faulty underpinnings of economic theory as has been widely taught in the last 50 years. Economists have tended to study healthy markets in healthy times, but that has given us precious little ammunition for dealing with the beast we have today, the over-leveraged, greed-oriented, financial institution-dominated market and weakly government-regulated economic world in which we find ourselves.
Indeed, Professor Willem Buiter of the London School of Economics has argued, "the typical graduate macroeconomics and monetary economics training received at Anglo-American universities during the past 30 years or so, may have set back by decades serious investigations of aggregate economic behavior and economic policy-relevant understanding."
Professor Buiter has just announced a jump from academia to the business side of the field. He has just accepted a new job as Head Economist at Citigroup, the company that (far worse than most) badly managed its affairs in the years leading up to the current crisis. Perhaps he can give more useful insight to the biggest of the "Too Big to Fail" financial institutions and help them chart a different course.
What does he owe to Professor Samuelson? We will have to let him tell us a few years from now, but I am intrigued by a quote from the same paper noted above, "Knowing that you know nothing is the beginning of wisdom."
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