What's with the Economics Profession?
When I see Delong more or less indiscriminately trashing everyone at Chicago, or Krugman trashing Barro, etc., what doesn’t arise in my mind is a sense that some of these guys really know what they’re talking about while some of them are idiots. What arises in my mind is the strong suspicion that economic theory, as it is practiced and taught at the world’s leading institutions, is so far from consensus on certain fundamental questions that it is basically useless for adjudicating many profoundly important debates about economic policy.
Not all disagreements among economists are alike. Some are based mostly on ideology, and some are based more on analytical points of view.
For example, on the issue of recapitalizing banks, I think the division is not so much left-right as it is mainstream-maverick. I can think of a lot of mainstream economists, left and right, who favor bank re-capitalization. On the other hand, I am very skeptical. I think Joseph Stiglitz is skeptical, also.
On the stimulus proposal, the division is almost entirely left-right. I cannot think of a single economist on the Left who is skeptical, and I cannot think of a single economist on the Right who is a supporter. [UPDATE: Actually, Martin Feldstein is to the right of center, and he supports a fiscal stimulus.]I think that the left-right polarization reflects the fact that the stimulus is ideologically loaded. If nothing else, it shifts large amounts of power and decision-making authority toward government technocrats. If you’re a neo-Galbraithian, that is a good thing. For example, Mark Thoma writes,
Tax cuts won’t build schools, or any other public good.
John Kenneth Galbraith was always complaining that the public sector was starved. He viewed entrepreneurialism as a myth. It comes down to a choice between technocratic planning in large firms or technocratic planning in government, and he preferred the latter.
On the other hand, if you’re a Hayekian, the shift in power is appalling. See my Battle of the Somme analogy.
As Tyler Cowen keeps pointing out (and he is not the only one), there is precious little theory or empirical evidence that the neo-Galbraithian policy will do much to alleviate the recession. Readers of this blog know that I am in the skeptics’ camp. My theoretical and empirical perspectives are given in my macro lectures.
There are economists making the case against the stimulus in ways that I find unpersuasive (Eugene Fama, for example). But the economists making the case for the stimulus are not doing a very good job, either.
There are no controlled experiments in macro. The major tools for giving precise quantitative answers to macro questions are macroeconometric models, with which no mainstream economist, left or right, has been willing to be associated for more than thirty years.
My advice to Will Wilkinson would be to distrust one-handed economists when it comes to macro. Humility is a virtue.