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Russ Roberts: Well, you know, my job here, as host of Econ Talk is to give my guests a hard time, from time to time. And you are arguing that the economic world has changed because the culture that it's embedded in has changed. ' And I looked at that and said, 'How could any economist possibly have seen that coming, given the primitive view of finance that economists had?My other job is to help the listeners and myself understand what the guest is saying. But, I would counter by arguing that human nature hasn't changed. ' All these financial instruments are--you don't even learn about.And my claim is that, you know, the economy is embedded in a culture; and the economy is embedded rapidly.So, that's different for something like in the physical sciences, where the subject matter isn't changing as you speak.And I think the bigger thing that we failed at as economists is that we didn't understand--macroeconomists--struggled to integrate the role of debt and leverage into their models.And, as a result, I think that's the biggest reason we were sandbagged by the Financial Crisis of 2008.
You know: We didn't accurately convey, say, what monetary policy was really doing.
Or: We abstract from the importance of the financial sector. So, your claim here, which I think is interesting, is that the financial sector's role in the economy is--the way I would describe it is it's sort of a black box role.
And, of course, by definition, every field is--almost every field--is unrealistic. It has something to do with growth and successful economic performance for an economy.
There's no material production going on in the financial industry. But, just because it is intangible doesn't mean it's not real.
It just means that economists have a hard time understanding it and a hard time articulating what it does.