New Economic Perspectives has the brilliant William Black article Economics could be a Science if More Economists were Scientists.

But here is the real takeaway about economists and their pretensions to be scientists.  The Fed employs hundreds of economists who are supposed to study important economic developments.  There were no more important micro-foundational developments than the three mortgage fraud epidemics and the hyper-inflated bubble that they produced.  The Fed’s economists, according to the authors of the study I have been discussing, failed to study the four developments that were about to cause a catastrophe.  To make it worse, only the Fed had the authority under the Home Ownership and Equity Protection Act of 1994 (HOEPA) to ban all liar’s loans and the Fed held a series of hearings mandated by Congress at which there was extensive testimony about liar’s loans.  The Fed’s economists, therefore, should have made studying the three mortgage fraud epidemics and the resultant bubble their highest research priority.  That’s what scientists would have done.

But those studies would have produced results that would have devastated the dogmas that rule the Fed’s economists.  The effectiveness of those ideological blinders in preventing serious research on the frauds by the Fed’s economists continues to this day.  This is a very old story.  Michael Jensen, when he was the managing editor of the Journal of Financial Economics, discovered that no proposed article could get through peer review if it challenged the efficient market hypothesis.  Jensen was a strong supporter of EMH, but he was appalled by this triumph of dogma over science.   He published an “anomalies” volume, though as he noted in the first volume each of the contributors professed belief in EMH.

The strength of Jensen’s endorsement for EMH, even when he discovered that his colleagues were ruled by their dogmas should be a cautionary tale with regard to Chetty’s claim that this time it’s different, this time economists will behave like scientists.  Jensen stated:  “I believe there is no other proposition in economics which has more solid empirical evidence supporting it than the Efficient Market Hypothesis.”  If he is correct, then the costly collapse of EMH suggests that all other economic propositions rest on even shakier foundations built on friable dogma rather than bedrock facts.

The irony of this article is that on this very web site, New Economic Perspectives, there is a contingent that adamantly refuses to understand the content of this article.

Look at the discussion of the article Why Understanding Fiat Currency Matters For Scientists: We Are Being Pitted Against Public Health.

I repeatedly refer to the writings of William Black to urge caution in the proposals put forth by the New Currency Theory proponents.  The person most often responding to my comments refuses to recognize the relevance of the possibility of fraud in talking about the theory.

I discussed this “conversation” in my previous post MMT, NCT, or Reality?