Barry Ritholz: The Hubris of Economics

In this blistering commentary about a recent WSJ article, Mr. Ritholz chastises the profession of economics for starting with incorrect assumptions, relying on incomplete models, and being paid to look the other way.

Science is the ultimate “show me” state.

Economics has a somewhat, shall we call it, less rigorous approach. Indeed, the arrogance of economics is that it is the polar opposite of Science. It begins with a few basic assumptions, many of which are obviously untrue; some are demonstrably false.

No, Mankind is not a rational, profit maximizing actor. No, markets are not perfectly, or even nearly, efficient. No, prices do not reflect the sum total of all that is known about a given market, sector or stock. Those of you who pretend otherwise are fools who deserve to have your 401ks cut in half. That is called just desserts. The problem is that your foolishness helped cut nearly everyone else’s 401ks in half. That is called criminal incompetence.

Someone should give this guy a Nobel prize. Oh, wait, they did. Twice.