Two quick points on the sociology of economic knowledge at professional schools

As an update to Friday’s post on Geithner et al., I wanted to flag this excellent bit from a longer post by Barry Ritholtz yesterday (emphasis in original):

The Efficient Market Hypothesis— at least as  practiced by Wall Street economists — is the rough equivalent of a million monkeys with a million typewriters creating Hamlet. That somehow out of a crowd of emotional, irrational, ill-informed and greedy humans, some form of truth will emerge.

*

How badly did the economics profession, academics and market pros alike, fail? Classic economic belief systems could not appropriately anticipate in advance or even identify in real time what was happening with the Residential RE/Housing market. They failed to see the Great Recession coming or even the market collapse.

The basis for this failure was the erroneous belief that “efficient markets formed by people holding rational expectations could explain virtually all economic activity.”

That thesis has now been thoroughly discredited. It is still taught in colleges and business schools, which is why I find most MBAs not worth hiring. Frequently, they can be worse than clueless — they are steeped in the bad ideas of long dead economists, and in my profession, that is not a formula for making money.

On a somewhat related note, I closed the post describing Geithner as a cadre, and now realize I need to clarify that. The most common definition of the word in 99% of the world is a revolutionary cell member, which is ironic since I meant the exact opposite. In France, the cadres arose as large organizations came to prominence, necessitating a well-trained and socialized class of managers and technocrats to run them. This fascinating book has a lot more on the topic.

Advertisements
This entry was posted in Education. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s