The End of Mainstream Economics: An Interview with Gunnar Tómasson

Egill Helgason’s interview with economist Gunnar Tomasson in English at Mises.org. Very insightful and educational.  

Egill:

Does this mean that generations of students have been brought up on nonsense ideology? For this is ideology, of course.

Gunnar:

Yes, nonsensical ideology. The root of the problem goes back to a point made in the mid-19th century by John Stuart Mill, one of the sharpest minds of all time, in an overview article on unresolved methodological aspects of economics. Mill viewed economics as a branch of logic and noted that the least error in the premises of any logical argument would infect with like error the whole superstructure built thereon. A seemingly small error is embedded in the premises of modern monetary economics. Paul Samuelson noted it very briefly in his Ph.D. thesis in 1942 and said it didn’t matter. Today, this small error is destroying the world’s monetary system.

Egill:

I remember that you have mentioned in your writings both leverage and currency speculation, the lack of supervision and other things in that connection.

Gunnar:

The things we are now witnessing in world financial markets have in fact been ongoing and evolving ever since the fall in the early 1970s of the Bretton Woods system, which was established by the victors at the end of World War II to prevent recurrence of monetary problems associated with the Great Depression. The fall of the Bretton Woods system ushered in anarchy in the international monetary system. At the time both Paul Samuelson and Milton Friedman were columnists for Newsweek and both applauded the new world monetary order. I wrote to both of them at the time and expressed a different view. But there is no point taking on founding fathers of so-called schools where people simply take it on faith that their gurus know what they are talking about. Paul Samuelson is the one who laid the theoretical foundation for this systemic anarchy. Milton Friedman then provided the emperor’s new clothes, dressing it in the garb of neoliberalism. That is how these two leading figures in American economic thought were united in unleashing on the world community the system that has now collapsed.

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2 Responses to “The End of Mainstream Economics: An Interview with Gunnar Tómasson”


  1. 1 Vilhjalm A. March 31, 2009 at 12:14 am

    “There is no point debating these issues with those whose livelihood depends on them being sound. We must wait until everything goes to hell in a handbasket, if you excuse the language, and then we will give them our telephone number.”

    Yes, it’s all true – the entire system is a fake, built on false assumptions.
    A number of economists have been predicting the “doomsday scenario” for quite a few years, Paul Krugman, Nouriel Roubini, Robert Schiller, Michael Hudson, one or two other Nobel winners.
    But nobody paid any attention to them.
    And even now nobody listens to them. The current American strategy of pumping money into the banks is fatally flawed, and Krugman and others have clearly pointed this out. The only solution is total bank nationalization, forcing creditors to take losses, and debt write-offs and write-downs. Instead, the US is trying to re-inflate the system by printing money. That is the only solution the US has for any problem. The US had a small crash in real estate in the early 90s, so they inflated the stock market up until 2001. Then the stock market crashed, so they inflated the real estate market. Now they are printing money to try to reinflate both stocks and real estate and thus delaying the inevitable, once again.
    So now we have to wait until the dollar crashes until there is another opportunity for reform of the system. And even then there won’t be a real solution, but some new trick, like replacing the dollar for a “new dollar”, for Americans only, thus allowing the US to cancel its foreign debt.

    Actually, these discussions are irrelevant to Iceland. Iceland is completely insolvent and can only survive on IMF and Norwegian loans. The game is already over for Iceland. The only hope for the future is a gift of a currency that has real value, the Euro, and foreign debt write-off, and/or simply handing over the country to Norway or Germany as a protectorate, colony or fiefdom. For instance, Norway could manage the country, re-train a large portion of Icelanders to work in their oil industry. Iceland could be a viable country again if 50-80,000 people had real jobs generating foreign currency. Otherwise, it’s bankruptcy and emigration.

  2. 2 Vilhjalm A. March 31, 2009 at 11:47 am

    A small bit of good news. It looks like the laws are being changed to allow “cramdowns”, ie modifications of loan-terms by courts for those who can’t pay.
    http://ruv.is/heim/frettir/frett/store64/item258138/
    The bad news is that this new law is probably not available to you unless you are about to declare bankruptcy. Also, it looks like the law applies not just to home-mortgages but to all kinds of debt, so probably it will be used mostly by businesses.

    Gjaldþrotalög í siðlausu samfélagi
    Ný lög um greiðsluaðlögun vegna veðlausra lána

    Ef gjaldþrotalög á Íslandi væru eins og í siðmenntuðum samfélögum í kringum okkar, þá væri betra að láta þessar ábyrgðir falla á lánveitandann. Láta bankana bera ábyrgð á því að hafa lánað fólki of mikið.
    Í nágrannasamfélögum okkar geta einstaklingar farið í gjaldþrot og byrjað á núlli eftir 2-5 ár.
    Hér í þrælakistunni hafa lánastofnanir lögbundið leyfi til að vekja upp kröfuna og haldið henni vakandi alla æfi. Þannig að Íslendingar geta ALDREI BYRJAÐ Á NÚLLI.
    Kannski er þetta mannréttindabrot samkvæmt EES?

    http://okurvextir.blogspot.com/2009/03/gjaldrotalog-i-silausu-samfelagi.html


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