Econintersect: On 04 January 2013 Nobel laureate Joseph Stiglitz of Columbia University described the problems with economics in a lecture at the University of Hyderabad in India. He describes in clearly understandable language the many false assumptions of macroeconomic theory of the past half century. He points out how the assumptions are internally contradictory. He identifies what he considers to be the three worst assumptions and the bad political policies that resulted.
The video of the lecture can be accessed after the Read more >> break.
Among the almost comical conflicts Prof. Stiglitz cites are the use of a representative agent in a macroeconomic model. This means that an entire economic class is assumed to behave like an individual. Therefore all exchanges with such models experience symmetry in information whereas in the real world there are significant asymmetries. He points out that this logically produces a state that is like schizophrenia because there is only one individual in the model who must have multiple different perceptions of reality.
Stiglitz then compares the schizophrenic condition to a second basic assumption that all economic actions are completely rational.
So there you have the conclusion that for the model to be realistic it will apply only to rational schizophrenics. And this is the world in which macroeconomics mainstream has been dwelling for half a century: completely rational schizophrenia.
This is a 1 hour and six minute lecture. Watch it when you have that amount of time. If you never hear another lecture on macroeconomics delivered up to this point in time, listen to this one.
