In a different time we could happily go about our lives, ignoring economists as largely irrelevant to our daily lives. That is no longer the case.
In helping to shape central bank policies, economists are performing one of the largest social and monetary experiments in all of history, and its outcome, good or bad, will shape all of our lives enormously over the coming years. In fact, this experiment is already well underway and yielding results. Perhaps not the desired results, but results nonetheless.
The biggest problem with most, but not all, economists is that their theories are founded on incorrect assumptions.
This biggest of them all is assuming that the economy has some sort of an ‘equilibrium point,’ a magic place where just the right number of monetary actions and policies will create high jobs, price stability, and economic growth.
Unfortunately, this is just completely the wrong way to look at things.
Niall Ferguson recently pointed this out and made a critically important point:
“Complex systems look like they are in equilibrium, but they are not: they are constantly adapting, highly decentralized, interdependent systems and this process of adaptation can continue for quite a long time. And you think to yourself when you look at it, that’s in a wonderful equilibrium. That’s how we think about the economy. That is how economists teach economics. They talk about it in terms of equilibrium.
The bad news is that in fact we inhabit a complex system that has virtually nothing to do with the neoclassical model that you are taught in Econ 101. And that’s why the economists failed to predict the financial crisis.
That’s the brilliant point; complex systems don’t have equilibrium points. They are dynamic and constantly shifting. Not knowing this places economists, the so-called experts of the realm, into the odd position of curating and promoting a body of knowledge that does not describe nor predict reality.
The concept that our economy is a complex system is vitally important.
by nichoman 
