Only Inconsistent With Neoclassical Economics
Robert Schiller is at it again, claiming that bubbles are inconsistent
with economic theory, and therefore tries to go outside the realm of
economics.
"Economists, in particular those at the Federal Reserve, are loathe to
believe asset markets have become bubbles because bubbles seem
inconsistent with rational investor and consumer behavior, the bedrock
of economic analysis. "The notion of a speculative bubble is
inherently sociological or social-psychological, and does not lend
itself to study with the essential toolbag of economists,""
He may be right that they are inconsistent with neoclassical economic
theory, but he need not leave the field of economics to explain them.
All he need to do is study Austrian economics, or more specifically
the Austrian business cycle theory.
And besides, going into sociology or socio-psychology doesn't really
solve the problem if you intend to remain comitted to neoclassical
assumptions. The neoclassical theory has a implicit
sociological/socio-psychological theory about the hyper-rational
investor, which cannot be changed unless you're gonna change
neoclassical theories. Particularly if you're also going to remain
committed to neoclassical theories about the neutrality of money and
the impossibility that central bank actions will create situations
where it could be economically rational for investors to create
bubbles, but economically irrational for society as a whole, as the
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