Newsweek's Robert Samuelson says that "many assumptions that economists once casually accepted and taught are now suspect or discredited."
Need examples? He has three:
We once thought we understood consumer spending, the economy's mainstay.
And:
We don't know how much the world economy affects the United States—and vice versa.
Finally:
We can't determine 'full employment.'
Read the whole thing, especially his conclusion.
I think that traditional economics failure to explain what's going on today has to do with the fact that economists haven't yet internalized the effect of virtually instantaneous information transmission, which has resulted in dramatically diminishing delays in production. Think of it this way--Just In Time production was UNTHINKABLE 20 years ago. But now instead of guessing what consumers are going to be buying 8 weeks from now, stores can place orders today based on yesterday's business and have the orders filled tomorrow. This is wholly due to the information revolution, but, I think, has a dramatic effect on the resiliency of the economy as a whole.
Finacial illusions.
We are awash in "funny money" that must be protected. How can the Fed inflate 3% each year if 5 trillion in heavily leveraged investments suddenly evaporates.
Public pension funds are all searching for that magical 6% or greater return rate. Orange County is just the tip of the iceberg as far as free lunch thinking. Don't even get me started on Hedge Funds.
Treasury Bonds are in demand because they are seen as a secure instrument for big players to stay solvent. Big money players are waiting to place their bets on the next big thing.
