By J. Mac Holladay, Founder and CEO. 

This week in Atlanta the American Economic Association held its annual meeting. There were PhDs everywhere, nearly 1000 of them. Finally on the last day of the meeting they asked the only relevant question covered at the meeting. To paraphrase, the question is, “How did they blow it so badly?” Virtually none of these theorists came close to predicting what we have been through in the past two years.

What is interesting is to consider is the lack of reality in trusting their models that some of these economists still seem to want to hold on to no matter what the result. Yale’s Robert Stiller rightly said “we want to have a beautiful and elegant model, I think we have to recognize that the world is complex.” Some of the assumptions are wrong and as Alan Greenspan finally admitted when greed is the key value, people don’t act rationally. None of the academic economic models can account for “confidence” which is a huge controller of what really happens in the economy.

Paul Krugman from Princeton, last year’s Nobel Prize winner in Economics, suggested “we’ve had some pretty major intellectual failures on the part of the economics profession.” Krugman also reflected that we learned almost nothing from the 1930’s. He referred to John Maynard Keynes “The Great Slump of 1930” and noted that “change a few words and it sounds like 2008 and 2009.” Finally, Krugman blamed the Federal Reserve (and other regulators) for years of inaction and stated, “The real tragedy in this crisis is that we actually had a pretty big tool chest, which we had stowed away in the basement and forgot where it was.”

Sadly, most of these economists and their forecasts will continue to be wrong. It’s as John Kenneth Galbreath said years ago, “The only reason for economic forecasting is to make astrology look respectable.” He is still right on the money.