Rational Expectations Theory: the Flawed Core of Free Market Fundamentalist Economics

Ah the economists continue to wake up and get a bit more rational. This is a parody of what is called “Rational Expectations Theory”, which is not rational, tells you nothing useful about expectations, and has no testable predictions so isn’t really a theory. It’s faith-based economics. But hey the Chicago School of free market fundamentalists love it. In Goldman Sachs they trust….

“The chicken that is fed by the farmer each morning may well have a theory that it will always be fed each morning – it becomes a ‘law’. And it works every day, until the day the chicken is instead slaughtered …
Now you might say that no chicken is an economist, but suppose that chickens were as intelligent as the farmer who keeps them, so they could be an economist … So if (the) chicken had been an economist, they would not simply have observed that every morning the farmer brought them food, and therefore concluded that this must happen forever. Instead they would have asked a crucial additional question: why is the farmer doing this? … And of course trying to answer that question might have led them to the unfortunate truth …”

See also the source of this story:

http://rwer.wordpress.com/2014/05/07/dumb-and-dumber-in-modern-macroeconomics-the-new-keynesian-version/

 

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About creativeconflictwisdom

I spent 32 years in a Fortune Five company working on conflict: organizational, labor relations and senior management. I have consulted in a dozen different business sectors and the US Military. I work with a local environmental non profit. I have written a book on the neuroscience of conflict, and its implications for conflict handling called Creative Conflict Wisdom (forthcoming).
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