Quote of the Day: The Failure of Macro Economic Policies

From Columbia University Professor Joseph Stiglitz writing on the IMF Blog, (bold emphasis his) [hat tip: Greg Ransom]

The most remarkable aspect of the recent conference at the IMF was the broad consensus that the macroeconomic models that had been relied upon in the past and had informed major aspects of monetary and macro-policy had failed. They failed to predict the crisis; standard models even said bubbles couldn’t exist—markets were efficient. Even after the bubble broke, they said the effects would be contained. Even after it was clear that the effects were not “contained,” they provided limited guidance on how the economy should respond. Maintaining low and stable inflation did not ensure real economic stability. The crisis was “man-made.” While in standard models, shocks were exogenous, here, they were endogenous.

In short, math models fail to predict the complexities of human action.