Cover of MoneyWeek issue no 450

The great escape

28 August 2009 / Issue 450

Three retirement tax havens... PLUS:

  • How to make money from old mobile phones
  • What has Putin done to Russia?
  • Bernanke's here to stay - investors better run for cover


Why economics gets it wrong

“Why do we keep on getting it so wrong?” asked an economist in the Evening Standard this week. The headline was sadly a lot more interesting than the article itself, which went nowhere towards answering the question. But that doesn’t matter – the answer’s pretty obvious. Economists keep getting it wrong because the theories their discipline rests upon are often just plain daft.

First there was the idea that people behave rationally at all times, or that markets are completely efficient. These are easy to dismiss because they’re clearly wrong – you wouldn’t get bubbles or busts otherwise. But in trying to explain why their original theory failed, economists are just swapping one bad idea for another.

The current concept gaining ground is the notion of the importance of ‘animal spirits’. It seems that economics is moving from viewing us as profit-maximising automatons, to seeing us as mindless sacks of hormones veering from blind optimism to depression for no particular reason.

But this is drivel too…

• Read the full editor’s letter here: Why economics gets it wrong