My good friend Ana Luiza was talking today about the article “What went wrong with economics” published in the always interesting The Economist. She mentioned that it was a good analysis of the situation. She’s one of the best economists I know, so I listen to her.

The articles starts powerfully “Of all the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself.” Something worth it to put in the recently open my quotes page. I enjoyed reading the whole thing. The only thing that I didn’t really agree is when he says “Macroeconomists, especially within central banks, were too fixated on taming inflation and too cavalier about asset bubbles.” I think central banks in the U.S., Spain and many other did not care at all about real inflation. We have to remember that the housing prices (which many say that this is what brought us here) , which is by far the highest expenditure of the families was rising around a 15% yearly, I did not see the central banks really calling for an action on this issue, like for example a tax on an empty house/apartment to avoid speculation.

Anyways what I found interesting is the quote of my man Paul Krugman. Last month at the London School of Economics (!!) he argued that much of the past 30 years of macroeconomics was “spectacularly useless at best, and positively harmful at worst.”

Professor teaching economics

A Professor teaching economics

I was never a fan of macroeconomics, so, obviously this assertion makes me feel really good. I remember in 1998, in my first year at the Facultad de Ciencias Económicas y Empresariales (Economics and Business School at Universidad de Alcala, Spain), we were going over Mankiw’s textbook on micro and macro, and after a few classes we started questioning our Professor (sorry I can only remember his nickname). I remember raising my hand in a specific example about the labor maket and saying, “but, this does seem to happen in reality”, and he answered “well, you have to learn the theory, even if it does not happen in reality”. Later in class I wondered with friends why in the world we should learn something like the theories of flying pigs. Anyways I was happy to learn about it, but probably less hours on subjects like these would be good.

This non-sense long studies in the mainstream economics studies, among other reasons, was why I probably found Ana in the masters program at the Business Department of Aalborg University in 2005.

This week I listened to an article on NPR (American public radio) which suggests that the MBA’s were highly implicated in this economic crisis (click on “listen now” 7 min. article). If you consider that all CEO’s, CFO’s, economic planners, and many influential politicians (including presidents) had earned their MBA’s from these prestigious schools, have they not been infected with some type of hard core capitalist virus? Have they not been thinking about making profits instead of creating real wealth for the society?
Of course, the professors of business schools declare in their interviews how stupid it is to put the blame on them. Actually for me, it does not make a lot of sense to blame their education to what has been happening all around the world and all types of industries. However I would say they are guilty of something.
First of all, I should say I probably have a bias. My background is in business studies and economics, however I mingle with many economist, who having been disenchant with the mainstream economic have entered the realm of Economic Geography. When I could have done an MBA in United States or Spain, I preferred to go to Scandinavia to do a Masters of Innovation and Entrepreneurship, with a good dosage of Evolutionary Economics.
Where I think they’re guilty is on not having told their student enough about economic cycles (see my previous post to get an idea). That businesses and economies come and go, surge and plunge. I have several friend in the US and Spain with MBA’s, I know their classes and I believe this is somewhat missing. I mean, it’s something really basic. You don’t grow in a linear way. Economic growth, should be more understood as Economic evolution. You can’t make a business plan of how a business it’s going to evolve. Stories that have been told for ever (the 7 fat and 7 lean cows anyone?) were discontinued. This never ending economic growth mentality, not only happened in the mentality all across the industries, also happened with the Goverments, and the majority of the citizens.
So NPR’s article while is wrong, goes in the right direction. However, many blame the economists for having created all this bubble, and not having predicted it. But I actually believe the problem is that we don’t have, in our business schools, society and government, enough real economics.