I used to have no time for the idea that economists never agree, so economics must be a bogus science and a waste of time

From Clive Crook:

"Politics is damaging the credibility of economics

By Clive Crook

Published: February 8 2009 17:06 | Last updated: February 8 2009 17:06

I used to have no time for the idea that economists never agree, so economics must be a bogus science and a waste of time. Of course economists disagree, I would say. Economics is difficult, and by its nature cannot be as clear-cut as the physical sciences. But it strives to meet the most rigorous standards of evidence-gathering and scientific method. As long as it remains aware of its own limits, one should not mock the discipline for aiming high.

Economists are right to disagree. This does not stop them improving public policy or raising the standard of discussion inside and outside the profession. Judge them by those standards, I used to say.

As a lapsed member of the guild – I had a spell as an economist in the British civil service – I have a lingering sentimental attachment. But my earlier confidence that economists are not wasting their own and everybody else’s time is diminishing. Are the leaders of the profession measuring up to the standards I just mentioned? Are they helping to improve policy, or raise the standard of public understanding? You could easily argue the opposite.

Economists are failing to express anything resembling consensus on the most basic questions of economic policy. Is fiscal stimulus desirable, or even possible? Some say yes, some say no. In a recession, is it best to cut taxes or raise spending, or both, or neither? They disagree about that. How should governments mend their broken financial systems? They disagree about that too.

I had thought they would at least agree that raising trade barriers at a time like this must be a bad idea. Then I read Paul Krugman, Nobel laureate, Princeton professor, and New York Times columnist, explain that raising tariffs – though perhaps unwise for other reasons – “can make the world better off”. “There is a short-run case for protectionism,” he went on, “and that case will increase in force if we don’t have an effective economic recovery programme.” What are his readers to make of this? Are all the economists who say otherwise just wrong?

This impression of disarray – that economics has nothing clear to say on these questions – is not the fault of economics as such. It is a mostly false impression created by some of its leading public intellectuals, Mr Krugman among them.

Economics outside the academy has become the continuation of politics by other means. If you wish to know what Mr Krugman thinks on any policy question, do not read his scholarly writings; see which policies are advocated by the progressive wing of the Democratic party. Mr Krugman agrees with liberal Democrats about most things, and for the rest gives as much cover as the discipline of economics can provide – which, given its scientific limitations, is plenty. He does this even on matters where, if his scholarly work is any guide, the economics is firmly against his allies. Liberal Democrats are protectionists. Mr Krugman is not, but politics comes first.

The syndrome affects economists on the right as much as on the left. Just as there is a consensus among economists that protectionism should be opposed, most economists believe that a powerful fiscal stimulus is both possible and desirable in present circumstances, and that the best stimulus would include big increases in public spending. Yet recently, Robert Barro, a scholar with conservative sympathies, wrote in the Wall Street Journal that this view was an appeal to “magic”.

The problem is not that Mr Krugman questions the consensus on trade (if indeed he does), or that Mr Barro questions the consensus on fiscal policy (as he certainly does). It is that both set the consensus aside so carelessly. In doing so, these stars of the profession destroy the credibility of their own discipline. Mr Krugman gives liberals the economics they want. Mr Barro gives conservatives the same service. They narrow or deny the common ground. Why does this matter? Because the views of readers inclined to one side or the other are further polarised; and in the middle, those of no decided allegiance conclude that economics is bunk.

Politics and economics are always difficult to keep apart. But the problem is getting worse, perhaps because political splits are deepening, or perhaps because the lack of disinterested economic advice is more keenly felt with so much at stake.

The web, for all its blessings, is an aggravating factor. Many of the most successful economics blogs promote communication within political groupings, not across them. On the web you best build an audience by organising a claque and stroking its prejudices. Extend elaborate courtesy to people you agree with and boorish contempt to those who do not get it. Celebrate exasperation and incivility as marks of intellectual authenticity – an attitude easier to tolerate in teenagers under hormonal stress than in professors at world-class universities.

Consensus economics does exist. The Obama administration and the Federal Reserve are trying to apply it. The economics professoriate has an obligation to criticise and improve those policies. But if politics is allowed to split the discipline, and communication across that divide continues to break down, the science of economics will forfeit what little respect it still commands.

Send your comments to clive.crook@gmail.com

Post and read comments at Clive Crook’s Washington Blog"

Me:

16. I think that there is a difference between Political Economy and Economics. Consequently, I can honestly say that I like Barro and Krugman and can use them both. My criticism of both is that they are rather too enamored of their own points, applying them almost mechanically, and not willing to understand the valid points that the other is making. Of course, my plan is a compromise plan:

1) Social Safety Net spending is not part of a stimulus. This can include aid to states for such services. It will cost what is necessary to truly help people suffering through this crisis. I have no set figure in mind.
2) $100 Billion for Infrastructure.
4) $300 Billion in Tax Cuts.
A. Sales Tax decrease or Payroll Tax decrease.
B. Tax Cuts for Investment.

In other words, I tend to agree with Krugman's amount, but use Barro's approach more. Politically, I would compromise in order to show unity in a crisis, which I believe to be very important. Since I have a Political Economy like Shiller's, I agree that a massive stimulus might work. However, like Buiter, I don't believe that we can risk it. I do think that government spending is important to show that we have enough confidence to invest in the future. Since I view the crisis through a more behavioral interpretation of Fisher's Debt-Deflation model, I would be much looser in my monetary policy.

In other words, I have an eclectic approach. What's wrong with that? Either politically, or economically?

Posted by: Don the libertarian Democrat