Ross Git­tins has writ­ten a very good overview of the fail­ings of neo­clas­si­cal eco­nom­ics in today’s Syd­ney Morn­ing Her­ald:

Self-right­ing mar­kets and oth­er shib­bo­leths

The arti­cle men­tions the Dahlem Report, but does­n’t pro­vide a link to it. For those who would like to read it, here it is.

I also wrote a post on the Dahlem Report short­ly after it was writ­ten, and helped pub­li­cise it by plac­ing it on my blog. Giv­en that its tone was in some ways even more dis­mis­sive of con­ven­tion­al eco­nom­ics than I am, the title for this post was obvi­ous:

I delayed pub­lish­ing this on the blog because I thought it was worth sub­mit­ting it to a news­pa­per for first pub­li­ca­tion on the anniver­sary of the Lehman Broth­ers col­lapse. That has occurred: a slight­ly edit­ed ver­sion of this post (for rea­sons only of length, I has­ten to add!) is in today’s Syd­ney Morn­ing Her­ald (page 4 of the print ver­sion), WA Today, and prob­a­bly sev­er­al oth­er news­pa­pers in the Fair­fax chain.

You have just come from your annu­al med­ical check­up, where your doc­tor assures you that you are in robust health.

“Green shoots” are appear­ing everywhere—just read the news­pa­pers, and you can be assured that we’ve turned the cor­ner. Bar the lat­est rise in US unemployment—up 0.3% to 9.7%, after falling 0.1% the pre­vi­ous month—there’s noth­ing but good news as far as the eye can see.

Unless, that is, you take a look at a wider range of data, as eco­nom­ic his­to­ri­ans Bar­ry Eichen­green and Kevin O’Rourke have been doing in their series  “A Tale of Two Depres­sions”.

One of the rea­sons I’m still a bear on the econ­o­my is because the econ­o­mists in the opti­mists camp are rely­ing upon very bad eco­nom­ic the­o­ry. If that the­o­ry is telling them good times are ahead, that’s one of the best pre­dic­tors of bad times you could have.

This isn’t because the opti­mists are bad econ­o­mists, bad peo­ple, or any oth­er per­mu­ta­tion: most econ­o­mists I know are good at what they do, and are very well inten­tioned too.

It’s just that they were taught a crock of non­sense at uni­ver­si­ty, and they now build mod­els based on a crock of non­sense that they erro­neous­ly believe to be accu­rate descrip­tions of the real world.

As not­ed ear­li­er, I’m giv­ing a brand new set of lec­tures on Behav­iour­al Finance at UWS. I am tak­ing a non-stan­dard approach (sur­prise sur­prise) because I am dis­sat­is­fied with the texts in this area–even though it is gen­er­al­ly a non-neo­clas­si­cal realm.

The rea­son is that most Behav­iour­al Finance texts  give too much cre­dence to the neo­clas­si­cal def­i­n­i­tion of rationality–when that def­i­n­i­tion has as much to do with ratio­nal behav­iour as walk­ing on water has to do with mass trans­porta­tion. I also want to include mate­r­i­al from chaos the­o­ry and econo­physics analy­ses of finance, which most texts haven’t incor­po­rat­ed; and I’m con­sid­er­ing micro, macro and finance togeth­er since all three are inte­grat­ed when one aban­dons the neo­clas­si­cal fan­tasies about “ratio­nal” agents who can accu­rate­ly fore­see the future.

Last month I spoke at a sem­i­nar on the finan­cial cri­sis organ­ised by The Whit­lam Insti­tute, in reply to a speech by Pro­fes­sor John Quig­gin. Guy Debelle, the Assis­tant Gov­er­nor (for Finan­cial Mar­kets) of the Reserve Bank of Aus­tralia, was the oth­er dis­cus­sant.

The Insti­tute has put togeth­er a very pro­fes­sion­al video of the dis­cus­sion, which has been picked up by SlowTV, a free inter­net TV chan­nel run by The Month­ly, an Aus­tralian mag­a­zine of com­ment and analy­sis which, amongst many oth­er things, pub­lished Aus­tralian Prime Min­is­ter Kevin Rud­d’s lengthy essay on the Glob­al Finan­cial Cri­sis in which he explic­it­ly cri­tiqued neolib­er­al­ism.

I’m speak­ing at the Aus­tralian Share­hold­ers Asso­ci­a­tion Investor Hour next Tues­day (August 18) at 12pm with the top­ic “The Mar­ket Crash: Ori­gins and Prospects”.

I’ll take a long view of the finan­cial data–going back to 1890–and explain the booms and crash­es of stock mar­kets as symp­toms of debt bub­bles and their burst­ing. From that point of view, this is the largest asset-price bub­ble in the last 120 years–and prob­a­bly in all of his­to­ry. The prog­no­sis for the mar­ket is there­fore grim, despite the cur­rent ral­ly.

I will be a pan­elist at Aus­tralia in the Red, a forum on debt organ­ised by The Dai­ly Reck­on­ing & Mon­ey Morn­ing, to be held at the State Library of Vic­to­ria on Fri­day July 31st from 7pm-11pm. The evening includes a pan­el dis­cus­sion on debt–with Dan Den­ning, Kris Sayce, Phillip Ander­son and Gabriel Andre as well as myself–followed by the screen­ing of “I.O.U.S.A.”.

The fol­low­ing infor­ma­tion is tak­en from their pro­mo­tion for the event, tick­ets for which are lim­it­ed and cost $199–click here for the online book­ing form. The “I’ll” below is Dan Den­ning.