The real story behind the economy

Attorney Henry Banta writes on the Nieman Watchdog site about how coverage of the economic crisis can be improved.

Banta writes, “The real story, about why so many believed in the efficient market theory and why it caused them to make colossal mistakes, has not been driven home to the general public. Of course students of economic policy know how profoundly the shock wave from last year has shaken the foundations of conventional economic thinking. But save for the analysis of a handful of writers, the story has never made it into the news. Yet, without that story, it is impossible to have a rational political debate about what do to get out of the trouble we are in and prevent it from happening again.

“Talking about this issue will offend a lot of people and challenge many deeply held beliefs. The rational efficient market theory underlies the political values held by many people who have never given the theory a second thought but who simply like the conclusions it supports. To point out that the economic support for their convictions has met a violent end will not be well taken. The efficient market theory had many followers, not because it was so compelling – many of its assumptions offended common sense – but because it fit neatly into the agenda of powerful interests. But if we cannot deal with the mistakes of the past how do we deal with the future?

“If bad economic theory got us into this much trouble, shouldn’t we be asking our current policy makers about their economic assumptions? Shouldn’t we be asking about the theory underlying current decisions? And why should such discussions be left to a few experts?”

Read more here.