Arnold Kling  

What's with the Economics Profession?

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Will Wilkinson writes

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.

Comments and Sharing

COMMENTS (30 to date)
Steve Sailer writes:

It's funny how there aren't rightwing and leftwing chemists. It's surprising that chemists lag so far behind economists in scientific sophistication.

brannigan writes:

Healthy debate is exactly what is needed. This is not the usual cookie cutter situation, we need all the ideas on the table, conventional or not.

Bill Woolsey writes:

I think there is a good bit more consensus among "mainstream" economists than you might think.

There is suffienct income to purchase output. (Whether or not people want to buy it.)

No maintream economist is advocating that price floors be created or raised to increase some peoples income, so that total income will be increased enough so that it will be then sufficeint to purchase output.

Final products and labor are scarce.

No mainstream ecnomists is arguing that the supplies of goods need to be dropped. (Killing off calves.. blowing up houses.. etc.)

No mainstream economists is saying that everyone--firms, governmeent, and consumers, all should demand less. (Say, so that we can all pay down our debts and then base our economy on a "sound" footing.) There is some consensus that if some kinds of spending should be less, that would be so that other kinds of spending could be more.

Technological innovation and capital accumulation raise labor productivity and raise real incomes. And.. this is a good thing.

The market shifts labor and other sources from less to more valued uses. This does mean that some firms lose money. Some capital goods are abandoned, and people are temporarily unemployed. This is, on the whole, a good thing, with the unemployment and losses being a necessary evil.

No mainstream economists are arguing that government needs to develop a national ecnomic strategy and then channel investment to the key industries of the future...

No mainstream ecnonomist is claiming that our ecnomic problems is caused by too many Mexican immigrants.

No mainstream economist is claiming that foreign competition is driving all of our companies out of business and so causing the recession. Stopping imports will solve our problems.

I think I could come up with more.

I don't think there is a consensus on whether there is too little spending.

And if there is too little spending, what should be done about it.

Let prices and incomes fall?

A more agressively expansionary monetary policy?

Tax cuts?

Or more spending on government goods and services.

I can see the left-right split on theory, but we should at least see some light from the empiricals. For example, it is possible that Barro does not estimate his multiplier correctly. Ideally, you have to apply it only in times of unemployment (and WWII was no longer really one, because of rationing, which is Krugman's point), and you have to control for the permanent-income and animal spirits elements of the other "exogenous" variables (consumption, investment, trade) to get at the Keynesian multiplier. If all you did was check on the C+I+G identity, it is no wonder that the multiplier is anywhere between 0 and 1.

Greg Ransom writes:

_Scientific_ differences are the basis for "ideological" differences, and this scientific difference is grounded in empirical facts, and rival views of how to provide explanations.

The empirical fact pointed out by Hayek (1937, 1941, 1945, 1974, etc.) is that neoclassical and Keynesian economists can't know what they claim to know in their "models" -- and the causal assumptions of their "models" make no causal sense -- they are empirically fallacious.

Hayek was crashingly insistent on this.

Keynesian economics and Walsarian economics and Samuelsonian economics is _bad economics_, scientifically bad, empirically fallacious, causally fallacious.

Hayek's differences as he pointed out gain and again were scientific -- he _shared_ the ethics and morality and emotions of the socialists and the Keynesians and the Samuelsonians and the Fabians and the New Deals. He came out of a socialist and statist background. His mentor Wieser was something of a "New Dealer" or social democrat (Wieser provided the first marginalist argument for progressive taxation, etc.)

Greg Ransom writes:

"stimulus" is in part scientifically loaded -- much or most of it is grounded in bad science, and bad causal explanation. That's in the large is Hayek's view, although Hayek's own relative price, structure of production causal explanation does conceive some roles for "stimulus" and monetary efforts and public works to stop a "secondary depression", extreme deflation, and a "downward spiral".

And on different grounds -- political -- Hayek sees other arguments for public works and monetary intervention.

Steve Sailer writes:

Bill Woolsey asserts:

"No mainstream ecnonomist is claiming that our ecnomic problems is caused by too many Mexican immigrants."

Which says more about the ignorance of "mainstream economists" than about the facts of the subprime mortgage meltdown.

A new study by two economists at the Boston Fed discovered that the foreclosure rate on subprime mortgages in Massachusetts in 2003-2007 among minorities was about twice the white rate. We already knew from federal Home Mortgage Disclosure Act filings that minorities in 2004-2007 borrowed twice as many dollars via subprime mortgages. If the Massachusetts findings on foreclosure rates are representative of the whole country, then approaching 2/3rds of all defaulted subprime dollars were defaulted by minorities.

ken melvin writes:

Couple shysters in suits sell the illiterate illegal a home for 3, 4, 5, even six times it's worth by telling them that it they will make at least $100k in a year via a mortgage that the illegal doesn't understand and could never ever make payments on and may or may not have signed, the sellers pockets the excess profits, and it's the illegals fault?

Bill Woolsey writes:


Mainstream economists are all talking about the "secondary" depression, avoiding deflation, and the downward spiral.

That, in fact, is what Keynesiasn have in mind when they talk about recession. The old monetarists also were totally concerned with that question too.

The debate is whether monetary means or public works are the best way to deal with that issue.

I would like to say that no one is proposing that monetary policy be used to reestablish the profitablity of the previous allocation of resources, but sadly, that isn't true. Though, many of those arguments are really about using inflation to create a transfer from creditors to debtors and avoid explicit default.

I do think that some of those supporting increased public works now do so because they want to see the U.S. look more like Sweden. A more extensive welfare state and improved provision of goods traditionally provided by government--or perhaps provided by the Swedish government.

Those who do not want to see that, and further, believe that a smaller government is desirable, are instead insisting on monetary stimulous, including tax cuts financed by money creation. This should reverse the "secondary depression" through the purchase and production of private consumer goods or capital goods.

I will grant that there is a "scientific" basis to these views about the role of government. Does a more extensive welfare state and more provision of public goods make people happier? Or not. Can the least well
off citizens be made better off through these means? Or not? Theories of market failure and
public choice are relevant.

But those are far removed from the effectiveness
of public works, tax cuts, and various sorts of
money creation in avoiding secondary depressions,
deflation, and a downward spiral. And so the "shorthand" description of these views being driven by ideology.

Lord writes:

I see little trashing, only an abundance of conservative economists making bad arguments. There is much to discuss and debate about fiscal policies, but their arguments rarely have even risen to this level. As DeLong quoted Mill, "Lord, enlighten thou our enemies.."

Beezer writes:

What is it with economists? I think it's a problem that they expect too much of themselves. They're all in search of the Holy Grail. Fine. The debate does inform. I'll leave it at that.

As an outsider, it appears to me that one huge problem is assessing the cost of risk. Private markets cannot really price in true risk. If they did, nothing much would get done. Risk is way too expensive for free trade. Governments, acting in a collective fashion through taxation of all, mitigate and shoulder much of the cost of risk, and thus protect and enable free markets.

Why can we afford home insurance, but not individual health insurance? Because the government provides firefighters. Without them, folks would just let their homes burn down if a fire started they couldn't control with the garden hose. Without the firefighters, no way could anyone afford to buy home insurance.

Trains and tracks, for the most part, don't receive any risk mitigation from the government. Automobiles and roads do. We've got more gas guzzlers and multi-lane highways (and about 100,000 deaths per year) because of this. Trains and the industries supporting trains, on the other hand, have atrophied.

No nukes. No way. Unless, of course, government insures them because no private, or even semi-private utility can afford the insurance.

What would the cost of a leather coat be if every tannery, worldwide, had to shoulder the risk cost of pollution? More than I (maybe not you) can afford. Same with a gallon of paint.

Who's going to pay for the cleanup of plastic debris? Coke? You and I are going to have to do it. No risk in the price of coke, believe me.

What's the risk of collapsing fisheries? The blue fin tuna goes for $100,000 per so someone can have expensive sushi. Ninety four percent of the blue fin are gone, and private markets are now trolling for the remaining six percent. Starkist going to recharge fisheries?

And, of course, the famous mis-pricing of risk in derivatives of all kinds. Guess who's coming to the bailout dinner?

This is why governments are going to have more to say, in the future, about what private industry can and cannot do. It's all about pricing risk and determining who is going to pay for it. Let the political games begin.

Greg Ransom writes:

Bill writes:

"Mainstream economists are all talking about the "secondary" depression, avoiding deflation, and the downward spiral."

The scientific dispute is over the scientific legitimacy of the Keynesian attempt to capture this problem in terms of "aggregates" directly imposing upon one another. Hayek believes he's proved the Keynesian machinery is a scientific fraud -- a fake causal mechanism.

If your "causal" picture is imaginary, your "solutions" to the problem are likely also to be imaginary.

Greg Ransom writes:

Mortgage bond king Bill Gross has advocating destroying huge tracks of housing stock to help his own industry -- along with massive bailouts for mortgage holders. Deep selfish and a disregard of other people may explain Gross's view, but there you have it.

Bill writes:

"No mainstream ecnomists is arguing that the supplies of goods need to be dropped. (Killing off calves.. blowing up houses.. etc.)"

Skeptikos writes:

I would very much like to see some economists take bets with those they disagree with on this issue. See if any stances are altered when there's a stronger incentive to be right...

"There are no controlled experiments in macro"

But there are unbroken logic chains which depend only on very realistic assumptions that show things like externalities, giant economies of scale which cause extreme inefficiency by leading to great monopoly power, asymmetric information, great lacks of information and expertise in an ultra complicated, no longer 1810, world, great costs of obtaining the often very complicated and advanced information and expertise so often necessary to optimize in the absence of government protections and assistance, inability or impracticality to patent, inability to price discriminate well so that products, especially zero marginal cost idea products, are grossly underutilized in a pure free market, transactions costs, private contractual enforcement and monitoring costs, the utility costs of increased personal risk, which can be enormous as we've seen after a generation of Republican policies, in general severe coordination, monitoring, trust and enforcement problems preventing high and extremely high return projects from happening in a pure free market, and of course the gargantuan pink elephant of economics, positional/context/prestige externalities.

You can construct completely solid logic chains to prove these that depend only on very reasonable, realistic assumptions, not the kinds of ludicrous whoppers that people like Barro depend on for their absurd claims. And these logic chains have been constructed in economics. They're explained throughout intermediate university microeconomics and macroeconomics texts ( to the readers, just take a quick look in the index for things like externalities, asymmetric information, and other of the things I've mentioned above), as well as in a rich academic literature showing them both qualitatively and quantitatively to a high enough degree for the case to be overwhelming.

As a result of these things, a strong government role, including strong government investment in projects that the pure free market will grossly underprovide because of these things, can greatly increase efficiency, economic growth, growth in science, medicine, and technology, and total societal utility.

For more on this, see here.

Jim writes:

Beezer, the tiniest momements thought shows we can afford fire insurance without government providing fire departments. Typical suburban wood frame houses are generally a total loss in fires. It's pretty binary -- you either contain in the kitchen or garage, or it burns down the house. Furthermore possessions are usually insured as 50% and they are a total loss if the fire department floods your house. Furthermore think "rural areas" -- the chance of timely response is near zero, yet ... companies insure them. Why because the chance of a fire in a house over about a 100 year lifespan -- a few percent. Fire departments have only a modest affect on fire insurance affordability for rural\suburban homes. They are there for public safety. And particularly to allow high urban densities.

And health insurance IS in fact available. It is howerver expensive ... because health care is expensive. (Burning through the cost of a house is not difficult in the all that non unlikely case of cancer treatment which affects a lot more poeple than house fires.) And it suffers the additional problem that risks are not at all equal. If people who know they are "at risk" for needing services can sign up only when they need care ... then the insurance principle is busted. This is completely unlike fires. (And obvious.)

There's some substance to your trains vs. autos. But clearly autos are paying -- they pay through gas taxes.

But your overall thrust is nonsense. There was tremendous economic development -- the industrial revolution -- with little to zero assumption of risk by the government. Government -- in the US -- only took over banking deposit risk in the 30s.

What is true is that this development without government regulation the booms and busts were huge. The busts when high leverage when ... poof!

Which shows exactly where the problem is. It's not capitalism. It's not free markets. It's leverage. Leverage that when it "busts" busts the money supply.

The culprit is the fractional reserve banking system, where banks take money that people expect to have as "money" and make investments with it. The investments go "poof" and suddenly the money supply has tanked and dragged down the economy.

What you need is simply a requirement that investments are investments, and money is money.

whats'what writes:

I guess when it comes to those "left and right" economic issues, neither side has a clue as to what is really going on.

economic policies aiming at unprecedented economic issues are quite like darts thrown by someone being blindfolded and drunk, in a dark room, after spinning for three hours. Zapp Brannigan: "it's like flying a spaceship; you push some buttons and see what works."

very few economists agreed with Keynes back in the old days. nobody knows how to deal with new issues, especially those of the economic kind.

so let's just try everything, which, I believe, is what the governments are doing, eventually we'll hit the right button; I emphasize the word "eventually"

wjd123 writes:

When economists talk of the need for cooperation in the global economy, I don't understand where they are coming from. I see no reason for this persistence of hope over experience. It rather annoys me.

I don't know what type of cooperation economist are expecting that will make the global economy whole when it never made sense to begin with. The was like a jigsaw puzzle resembling some modern painting with an eye over here and and arm over there. Economist are acting as though the pieces can be fitted back together in a manner to form a pastoral scene. That would mean completely new pieces put together in a completely new way.

The free trade that economist have pushed for has brought us a global economy of anarchy where corporations are free to play one nation's laws and regulations off against another. The eye-over-here-and-arm-over-there global economy is the one economist have pushed upon us. They before anyone should know that it's not a global economy conducive to cooperation. A global economy of harmony and cooperation can't be created from it. That simply isn't the picture on the cover of the jigsaw box.

An economy based on lawless anarchy will never be turned into one of cooperation and harmony. For that to happen, for a pastoral scene to emerge, the pieces in the box along with the way they are fitted together has to change. That calls for more than an adjustment to a currency here and and an assurance by the IMF there. An adjustment and an assurance won't alter the corporations ability to escape norms. This fact alone, as Lawrence Summer has pointed out, brings in to question the legitimacy of our free trade system.

Here is an excerpt form Tim Duy's "Threading the Needle" that exemplifies the problem with making the global pieces fit.

At the same time, they want to lessen dependence on China, which requires that Chinese policymakers stimulate domestic demand to a sufficient extent to allow for China to ease purchases of Treasuries and allow the Yuan to appreciate in a nondisruptive fashion. Seems like a steep expectation for the export-dependent Chinese, you are now faced with faltering growth rates. If the Chinese don’t cooperate, a portion of any US stimulus is lost to higher imports – always remember that the US doesn’t have much excess productive capacity in tradable goods. The excess capacity exists in China. And Congress would be less than happy to see US tax dollars supporting Chinese jobs.

Martin Wolf thinks cooperation should be negotiated to look like this:

If it is going to be through contractions in supply, the surplus countries [such as China] are particularly at risk, since they depend on the willingness of deficit countries to keep markets open. That was the lesson learnt by the US in the 1930s. Surplus countries enjoy condemning their customers for their profligacy. But when the spending stops, the former are badly hurt. If they try to subsidise their excess supply, in response to falling demand, retaliation seems certain.

Obviously, expansion of demand is much the better solution. The question, though, is where and how? At present much of the expansion is expected to come from the US federal budget. Leave aside the question whether this will work. Even the US cannot run fiscal deficits of 10 per cent of GDP indefinitely. Much of the necessary expansion in global demand must come from surplus countries.

Managing this adjustment [seeing that more global demand comes from surplus countries like China} is far and away the biggest challenge for the group of 20 advanced and emerging economies, which will meet in London in early April. Mr Obama must take the lead. He can – and should – say he expects these adjustments to be made, but understands they will take time. He can also sustain exceptional fiscal and monetary measures in the short term, if his country’s main trading partners make the necessary medium-term adjustments in their spending. China, in particular, needs to create a consumption-led economy. That is in the interests of China. It is also in the interests of the world.

Yet this is not all the US should propose. If the world economy is to be less dependent on destructive bubbles, more of the world’s surplus capital needs to flow into investment in emerging economies. The problem, however, is that such flows have also always led to crises. This is why emerging economies set themselves to accumulate vast foreign currency reserves in this decade. It is essential, therefore, to make the world economy much more supportive of net borrowing by emerging economies.

Did someone forgot that "the U.S. doesn't have much excess productive capacity in tradable goods." And telling China that we understand these implementations will take time while running fiscal deficits of 10% of GDP is not only to invite disaster but also to assure that those impementations that go against China's national interests will never get done. When it comes to China and its currency manipulation enough is enough.

I prefer sanctions over conjoling, the immediate implementation of the Ryan-Hunter bill that in the words of Thomas Palley "proposes treating currency manipulation as a form of illegal subsidy that would be subject to countervailing duties. In this fashion, Ryan-Hunter aims to offset China's undervalued currency and circumvent China's refusal to meaningfully revalue its exchange rate." But wait, beside the fact that the U.S doesn't have much excess capacity in tradable goods won't a stronger yuan slow investment into China. The pieces don't fit.

So how do you get everyone to cooperate in putting the puzzle back together much less back together and looking more like a pastoral scene and less like one of constant warfare among competing interests? How one get's the picture on the box cover and the pieces inside to match is by ensuring that your trading partners, the ones you're going to practice free trade with, share the same values--for instance, the right to assemble--and have the werewithall to to live up to the rules and regulations of an international political economy. The rest, the nations that don't share values like democracy and can't or won't enforce the international laws agreed upon, get no assurances that tariffs won't be imposed. In this way international corporations will be deterred from their assult on norms.

The ideal situation would be for those trading partners which shared values to give up some of their sovereignity to an international government which expands rights even further. For instance, greater protection for woman in the workplace and enhanced voting rigths such as is done today in the European Union.

Going from the particular of nation states to the greater universality of internationlism is a process made more palatable by an expansion of human rights. Old loyalities are broken down and exchanged for new ones garanteeing greater rights. A world of trade anarchy is exchanged for one bounded by laws that can be and are enforced. International corporations will find it riskier to play one political economy off against another in their endless search for competitive advantage.

Greg Ransom writes:

Did Darwin explain the origin of species using "controlled experiments"? No. Controlled experiments are not necessary for massive explanatory power.

Someone wrote:

"There are no controlled experiments in macro"

Robert Waldmann writes:

"I cannot think of a single economist on the Right who is a supporter. "

Look Martine Feldstein is not right of center in the ordinary usage of the term "center" in the US. He is a bitter oponent of social security pensions, placing him ultra right. He predicted taht the Clinton tax increases would lead to minor increases in revenues, that is that we were near the peak of the Laffer curve. This placing him on the loony right wing of the economics profession. It is difficult enough for economists of different ideologies to debate constructively. It is impossible if economists to the right of center claim that Martin Feldstein is "right of center".

DeLong has asked which economists appointed to the board of economic advisors by Republican Presidents are opposed to the stimulus. The count is maybe one (Mankiw) who does not make his views on optimal policy in a liquidity trap clear.

Finally the arguments made by top right wing economists against the stimulus are not predictable given ideology. It is necessary to note astonishing ignorance or dishonesty or both. That is, can you defend Fama, Cochrane and Becker from the criticisms made by DeLong and Krugman (and independently and simultaneously by many others including me).

This is not ideological disagreement.

Our claim, at least, is that Becker is either totally uniformed about current interest rates, or totally ignorant about the history of Macro theory or lying and that Fama made a mistake worth an F in s course for sophomores. Civil debate is not helped by such a discussion. I think that Becker and Fama are solely responsible as the criticisms made by DeLong Krugman at all are as polite as one can possibly be without presenting an interpretation of their contributions which is plainly inconsistent with the text (as Mankiw does)

Carl The EconGuy writes:

1. All our modern macroeconomists are flying blind at the present, because they have no clear theory for how the current recession happened. Macromodels don't integrate financial markets into real theories, and so cannot explain why a reevaluation of assets should in and of itself cause a recession. Thus, we can't trust any of their policy proposals because they are all based on seat of the pants arguments.
2. We've had a huge natural experiment in extremely liberal monetary policies combined with enormous deficit spending during the Bush years -- a combined pig-out of monetarism and keynesianism. All that got us was a recession. What happened to all the Bush multipliers, where did they go? Why should they now reemerge as Obama multipliers?
3. Economic models assume rational spending in Congress, not the Barack-porkfat that is coming out. On top of which they can't spend it for another year or two. That's not what the textbooks prescribe. Why should you place your trust in economic prescriptions that so completely deny political reality? Economist social engineers are still assuming there are can openers, totally ignoring the intellectual desolation that is Congress.
4. All I conclude is this: Oh!Bummer, we're Barack to the past. We've solved nothing in macro research for the last umpteen decades. If you lay all the macroeconomists of the world end to end, you still would not reach a conclusion. And that's a fact.

floccina writes:

Bill Woolsey I like your posts but i think that you are wrong on this point:

No mainstream economists are arguing that government needs to develop a national ecnomic strategy and then channel investment to the key industries of the future...

I think a few economists (including paul Krugman) are calling for an energy strategy and a green techonlogy strategy, rather than a say a tax on pollution.

Floccina writes:

Steve Sailer wrote:
It's funny how there aren't rightwing and leftwing chemists. It's surprising that chemists lag so far behind economists in scientific sophistication.

In as much as chemists look at harm certain chemicals might do to humans and the environment there are huge differences. On AGW also.

fundamentalist writes:

Kling: “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.”

Wilkinson: “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.”

This is not a new problem for economics. I re-read over the weekend O’Driscoll’s “Economics as a Coordination Problem: The Contributions of Friedrich A. Hayek” on this web site. It’s a short book. O’Driscoll wrote in the late 1970’s:

“The crises are being proclaimed everywhere by pundits and serious economists alike. When Sir John Hicks lends support to this chorus of woes in the very title of his recent book,The Crisis in Keynesian Economics, then truly something is amiss with economics…”

“None of the above is intended to deny that there is a general crisis situation in economic theory, of which various particular crises, such as that in Keynesian economics, are but manifestations of a more general intellectual malaise. Nor am I entirely out of sympathy with particular "radical" criticisms of orthodox models. I am simply arguing that the crisis has simply not been diagnosed, though its symptoms are now well known. They have been observed in numerous recent works, including Hicks's and in previous chapters of this book. But no satisfactory diagnosis having been made, it is no wonder that the putative cures are misconceived….”

“My argument, then, is that the various crises in economics are manifestations of inconsistencies in the neoclassical research program. These inconsistencies are present because of the curious admixture of Ricardianism and neoclassicism present in the modern research program. The inconsistencies were never resolved, though their resolution was in sight in the thirties when it was aborted by the Keynesian revolution. The current situation is the result of forty years of repressed debate over the very fundamental questions that occupied economists in the earlier period. We are now condemned to relive the debates unless we succeed in using the earlier discussion as starting points.”

“In particular, Mises and Hayek went a long way toward solving a theoretical problem that besets economists today—the integration of monetary and value theory. Whatever else can be said about Hayek's monetary economics, his work does consist of a monetary theory erected upon a consistent microfoundation. Whatever else can be said about almost any other monetary theory of economic fluctuations, it lacks that consistency. Since an avowed purpose of macro and monetary theory today is to provide a microfoundation for the analysis of economic fluctuations, this alone recommends a reconsideration of Hayek's work.”

George writes:


The first professional firefighters were employed by fire insurance companies, not the government. The insurance companies dealt in risk, and found ways to mitigate it (to everyone's benefit: not having your neighbor's house turn into an inferno is a serious positive externality for you, as you watch from your own tinderbox sweet tinderbox).

Kieran writes:

Economics should not be criticized because there is strong debate amongst economists. This is the only manner in which predictions can be made about unpredictable outcomes. With all sides argued clearly and honestly, a fuller picture can be seen as to what factors matter.

I am in agreement with Krugman but his approach to debate bothers me because he writes off other economists who he disagrees with. He seems childishly annoyed rather than academic and confident in his views.

This is because he does not believe other economists are presenting their sides clearly or honestly. EconGuy is right on one thing, there is a terribly lack of financial knowledge amongst econs.

Robert Waldmann writes:

Kenneth Rogoff is another conservative economist who supports the stimulus

Larry Lindsey is a conservative economist who supports the stimulus (or at least a huge stimulus)

Robert Hall is a conservative economist (very conservative) and he believes that there will be 0 crowding out (so a multiplier of 1) rather far from 0 as asserted by Lucas, Fama, Cochrane and so forth.

He doesn't make a policy recommendation in the note to which I link.

Robert Barro estimates a multiplier of 0.8 which is also quite different from 0 (using data similar to that used by Hall and Ramey).

Alex Tabbarock is a conservative economist and he supports "moving up useful infrastructure spending (both public and private) today"

The quotation of Greg Mankiw from first shows that he supports a stimulus and second makes a very very mild case for tax cuts as opposed to spending. Notice the word "might"

Harvard University economics professor Greg Mankiw:

"My advice to Team Obama: Do not be intellectually bound by the textbook Keynesian model. Be prepared to recognize that the world is vastly more complicated than the one we describe in econ 101. In particular, empirical studies that do not impose the restrictions of Keynesian theory suggest that you might get more bang for the buck with tax cuts than spending hikes."

This is totally inconsistent with the view that you get no bang for the buck with either.

Your assertion that all conservative economists oppose the stimulus is false. I don't see how you could have imagined that after following the debate.

More importantly, the views of conservatives economists differ vastly. There is a huge difference between economists who think that fiscal policy has no effect on aggregate demand like Fama and economists who think that the multiplier is 0.8 or 1 not 1.5 and economists who think the stimulus *MIGHT* be more effective it it were based more on taxes and less on spending.

Here by Conservative I mean Republican.

There is also a possible liberal skeptic, Tom Sargent. He doesn't actually make a policy proposal and his observation that the calculations one gets from Obama, C Romer and Krugman are based on the assumption that nothing currently useful has been learned by macroeconomists in the past 60 years (actually more like 71) is just plain true and no one contests it. However, he is on the Heritage list with you. Do you know his party affiliation ?

James writes:

I find it very disturbing to hear that some stuff Greg Mankiw (and other textbook authors) teaches in undergraduate textbooks isn't backed up by empirical evidence. Why the hell is it in his textbooks, then?

Teach only substantiated facts to undergraduates and save the unsubstantiated hypotheses for Ph.D. candidates!

jorod writes:

Tax cuts without spending cuts are the bane of current society.

Will someone clarify this. Why do tax cuts work but spending cuts never get a hearing?

Rajesh Benna writes:

The debate at the end of the day is about haves and have-nots ( either wealth, knowledge or power). I think as Arnold says we should first have humility in understanding the issues and let not millions of poeple die out of hunger and poverty while the intellecutuals keep experimenting with their models. A simple test of success would be to adress the above inequalities and ensure that the millions of impoverished are able to fulfill their bare- minimum necessties of life, not to mention taking care of broader ecology and other species.After all commodity fetishism along with casino capitalism has already taken its toll...

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