By Bryan Caplan
Lately a few people have accused me of being “closed-minded.” As they’d predict, I reject the accusation. I say my degree of openness is close to optimal. Consistent with Bayesian reasoning, I am as reluctant to claim vindication by events as I am to admit refutation by events. (If you disagree, I am always willing to entertain a bet).
The root problem, as far as I can tell, is that most people underestimate the extent to which a wide variety of theories are consistent with a wide range of events. In this sense, they’re too closed-minded.
During the 2008 financial crisis, for example, most economists started proclaiming that events had overturned most of what economists thought. I, in contrast, (a) never ruled out events like those of 2008, and (b) didn’t see how heterodox views made the events of 2008 any more likely than more orthodox views. Self-styled “open-minded” economists have been guilty of what Scott Sumner aptly calls a “bonfire of the verities“:
Back in 2007 one could take some pride in being an economist. There
were a set of truths that were pretty widely accepted, at least among
the more elite macroeconomists…
1. “Monetary policy can be highly effective in reviving a weak
economy even if short-term interest rates are already near zero.” The
quote is from Mishkin’s text editions 1-9 (removed from 10). Friedman
and Bernanke made similar statements, as did many others.
2. A much more stimulative monetary policy, perhaps involving leaving
the gold standard, would have prevented the 50% fall in NGDP during the
early 1930s, and thus would have largely prevented the Great
5. Low interest rates do not imply easy money. (Again, Bernanke,
Mishkin, Friedman, and many others made this point. It’s what we’ve
been teaching our students from the number one money textbook.
6. Higher minimum wage rates and extended UI benefits increase the natural rate of unemployment.
11. Natural disasters do not cause higher unemployment in big
diversified economies, AD shocks do. This explains why Japan’s
unemployment rate rose after its NGDP fell sharply in 2008-09, but did
not rise at all after the tsunami.
12. Big increases in government spending, taxes, and regulation may
cause harm to the economy, but don’t really play much of a role in the
business cycle. They don’t cause the unemployment rate to rise in the
short run, as FDR and LBJ showed.
17. Price gouging is actually a good thing.
18. The “broken windows fallacy” really is a fallacy.
The key passage, though, is in Scott’s post-script:
PS. What most depresses me is that (with a few exceptions such as
the minimum wage) I can’t see any facts, any empirical evidence, which
would have led a reasonable economist to abandon these verities. But
Whenever people start praising open-mindedness, I’m tempted to quote Chesterton: “Do not be so open-minded that your brains fall out.” Shocking events should only change your mind if they occur at an unexpectedly high (or low!) rate. Otherwise, stare decisis.