From Reuven Brenner at Asia Times (atimes.com):
Part 1
George Akerlof’s and Robert Shiller’s (Nobels in economics) new book, titled Phishing for Phools: The Economics of Manipulation and Deception declares on its first page that people “do not do what is really good for them; they do not choose what they really want.” It appears that a main preoccupation of economists – the self declared “behavioral economists” prominent among them – is to show how dumb people are as consumers and in assessing risks.
Drawn to logical conclusion, this implies that economists, advising benevolent dictators are the solution. If, indeed, people are often “irrationally exuberant,” plain dumb, uninformed, unable to learn from mistakes, easily manipulated – all the things Akerlof and Shiller suggest — why have markets drawing on mazes of contracts to start with? The book implies that the writers know what’s good for the “hoi-polloi” who suffers from temptations that these illustrious writers never succumb to and thus should advise governments (in a recent letter, Ralph Nader suggests that Mr. Akerlof should advise his wife – Ms. Yellen – about Federal Reserve policies).
To be fair, such elitism has precedent in Keynes’ famous “animal spirit” view in his General Theory (which was neither “general” nor ‘theory,” as Keynes himself acknowledged, promised to amend, but died before he managed). Keynes argued that governments must spend sometimes more and sometimes less to compensate for the crowd’s random bouts of optimism and pessimism, implicitly assuming that – hold your breath – politicians and bureaucrats are never subject to such lowly spirits.
Since much in the book implicitly relies on a brief article that brought Mr. Akerlof fame – “The Market for Lemons” — cited in his Nobel Prize award and included in economics courses, I’ll discard it first, and later all the “behavioral economics” fad – which at close inspection is neither “behavioral” nor “economics.” Perhaps if Mr. Akerlof and economists did some introspection and applied both the article and the fad to themselves, they would have re-written both the article and the book.
To continue reading: What if economists applied their own theories—to themselves?
