Over the past 5 years I've done a number of posts discussing a strange phenomenon. My views on money/macro are in many respects quite close to the consensus view of 2007:
1. Fiscal stimulus is ineffective.
2. Monetary stimulus can be highly effective at the zero bound.
3. Low interest rates and a fast rising monetary base do not imply "easy money."
And yet by early 2009 my views were widely regarded as heterodox, even bizarre. Of course when new facts appear it is natural (even healthy) for people to change their minds. However I was unable to find any sort of new facts that would justify this sort of radical change in macroeconomics. When I talked to people they tended to cite new "facts" which were not accurate. Thus I assumed they were simply making a mistake. And that's still what I am included to believe.
But now I'm seeing another huge area of changing worldviews--inequality. And in this case the "mistake theory" seems less adequate, although I continue to believe it's a part of the story.
After listening to a long interview with Larry Summers, I wrote a post listing some areas where I disagreed:
6. He thinks capital income should be taxed more heavily. I oppose all taxes on capital income.
7. He thinks growing inequality is a major issue in the modern world. I see growing equality as the most important trend since 1980.
Then I saw Tyler Cowen link to a 2005 post with this interesting nugget:
Lots of progressives have shifted their views on capital taxation. But it's striking to see such a large shift from someone Tyler Cowen cited as the leading advocate of not taxing capital.
Now let's consider this shift in a broader context. In what other related areas have the left shifted their views? One obvious answer is the minimum wage. On the other hand, as far as I know there has been no significant shift on rent control. I don't recall any well-known economists advocating an extension of NYC-style rent controls across the country. What are we to make of this pattern? I see three possibilities, all of which are probably partly true:
Receptivity: Progressives are more receptive to policy proposals aimed at reducing inequality, because they see inequality as an increasingly serious problem.
But that doesn't seem adequate, as the original view was that higher minimum wages don't actually help the people they are designed to help. So we need more than receptivity.
New Information: There might be new academic studies that change opinions. Card and Krueger did a study of minimum wage laws in New Jersey and Pennsylvania that found little impact.
On the other hand, the policy views of economists are rarely impacted by academic studies. More often, they say; "I just don't believe that result" when it differs from their prior beliefs and/or theoretical assumptions. And they often have good reason for doing so---most empirical results are not very robust. Bryan Caplan gave very good reasons for being skeptical of the revisionist work on minimum wages.
Cognitive illusions: In all of the cases discussed: monetary policy, fiscal policy, taxation of capital, minimum wages, etc., it seems as though opinion has migrated away from the sort of counterintuitive views often held by economists and toward the more "common sense" views held by the man on the street. Even many Republicans favor a higher minimum wage rate. Inequality has powerful "framing effects."
I happen to think all three factors are important. Many people are very cynical, and believe the only explanation you need is corruption--special interest politics. That certainly may work for politicians, but at the risk of appearing naive I simply don't buy it as an explanation for academics. I see no reason to assume that other academics are more corrupt than I am, and will not change that view without persuasive evidence.
By the way, you also see ideologies changing on the right. There seems to be more opposition to immigration that in the past. In the Reagan era conservatives seemed to view free markets in labor in much the same way they viewed free markets in goods. Now concern over cultural change associated with high levels of non-European immigration seems to have made American conservatism somewhat more xenophobic, albeit not as much so as in Europe.
Perhaps the new egalitarianism will end up like the old Keynesianism. The parts of Keynes's message that were consistent with progressive macro thought in the 1920s, have survived in the form of New Keynesianism. The more distinctive portions of the General Theory tended to fade away, as those ideas were overly influenced by the powerful "framing effects" of the Great Depression (until being revived in the wake of the almost as powerful framing effects of the Great Recession.)
Maybe it's wishful thinking on my part, but I believe that the Larry Summers of 2005 will have a much more lasting influence than the Larry Summers of 2014.
The left is moving left. But the left is most likely to be right when it is right. Just as the right is most likely to be right when it is left. Or something like that.