Monday, March 17, 2014

Do economists control our ideas?




John Maynard Keynes famously said: "The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood...Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist." And Nicholas Kristof recently wrote: "[E]conomists (including my colleague in columny (sic), Paul Krugman) shape debates on issues from health care to education."

Maybe our ideas are shaped by dead economists - Milton Friedman's libertarian vision, for example. But do living economists really hold such sway over the public discourse in this day and age? I'm not so sure.

With regard to the general public, only a few economists command real wide-ranging respect. Paul Krugman is the most prominent of these. But Krugman is an opinion columnist. When he writes about stuff outside his academic specialty - for example, race and politics - does he really carry more weight than his colleagues David Brooks, Nick Kristof, or Thomas Friedman? Maybe a bit more, but not a huge amount more. And there are not many Paul Krugmans out there. In lists of "top public intellectuals" and "most influential thinkers", few economists make an appearance.

Even in purely economic matters, economists don't seem to command the public respect one might expect. Sure, Robert Barro and Martin Feldstein pop up periodically in the Wall Street Journal to say that deficits or QE are bad, and Greg Mankiw rails against taxation of the rich in the pages of the New York Times. But there are a bunch of people saying the same thing (and the opposite thing), and it's not really clear to me that the stellar research careers of Barro, Feldstein, and Mankiw give these guys a greater power to move public opinion than the average WSJ staff writer or magazine pundit.

In fact, the general public seems to mistrust the verdict of economists on some key economic issues. Most Americans still seem to believe, for example, that free trade is not always a good thing, in defiance of economists' concerted (possibly too concerted) attempts to convince them otherwise.

There are some economists who successfully advance "big think" ideas - Richard Florida, Erik Brynjolfsson, and Tyler Cowen come to mind. But are these academics really more effective at this than, say, writers like Malcolm Gladwell? And among academics, aren't there psychologists and physicists and biologists whose popular books are just as powerful as those of economists? Steve Pinker is a good example.

Then there's Freakonomics, but I don't think anyone is the slave of Freakonomics. Though the phrase "slave of Freakonomics" is pretty fun to say.

How about elite opinion? People like Larry Summers and Christina Romer certainly seem to have some sway over the Obama administration, but overall their Keynesian advice was unable to overcome Obama's own instinct toward austerity and low deficits and structural reform. Art Laffer certainly seemed to have an outsized influence over Reagan and the GOP, but he's "the exception that proves the rule" (meaning, of course, that he's by far the biggest exception I can think of off the top of my head). In terms of broader elites - business leaders, opinion writers, Congressional staffers - it's more difficult to say.

How about effects on other fields? In the legal profession, there is the "law and economics" movement, which seems to have had a big effect. Economics made a push into the sociology realm with Gary Becker's "imperialist" econ, but that is no bigger than, say, psychology's intrusion into econ, or postmodern critical theory's intrusion into anthropology (Ha! See that? Random unprovoked anthropology diss!). And though you occasionally see an article about "the economics of sex", I don't think most people have yet bought into the idea that we can explain our daily lives with utility functions and Nash equilibria.

Actually, there has been somewhat of a pushback by other academics against the notion that economists are all-purpose sages. Physicist Mark Buchanan, for example, has been very vocal in challenging macroeconomics in public.

So if economists have outsized control over society's ideas, well, it's not that outsized. When it comes to the ability to exert undeserved influence over the minds of humankind, there's one group that blows economists, and everyone else, away:

Writers.

59 comments:

  1. Anonymous2:46 AM

    I don't find this at all convincing.

    Maybe you should make a video.......

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  2. I think CAPM is pretty damn powerful. It's driven both the massive movement to index fund / passive stock investing and it has changed the industrial structure of the US by emphasizing diversification at the investor instead of the firm level. Markowitz is still kicking. And I think this is what Keynes was referring too. Economic ideas that kind of exist in the background that become common knowledge without people knowing their basis.

    On the macro side a lot of the lack of influence can be explained by the rise of RBC, which is intentionally designed to be policy neutral in a way.

    I agree with you about writers, It's easy to cover up shoddy thinking with good writing.

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  3. Economists are more important and influential than ever. They explain the world with their models and can solve crisis. Economists are the reason why the markets made such a huge rebound in 2009 because of the success of TARP. Economists and writers are also mutually exclusive in many instances because writing is how economists convey ideas. Daniel Kahneman, Tyler Cowen, Dan Ariely, and Robert Shiller have written books that have reached a wide audience. They may not get the volume of Malcom Gladwell or E. L. James but very few authors do.

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    1. Anonymous6:39 AM

      "They explain the world with their models and can solve crisis. Economists are the reason why the markets made such a huge rebound in 2009 because of the success of TARP."

      Careful that you do not suffocate from the stink of your bullshit.

      Delete
  4. I think this is exactly the sort of thing Keynes was referring to when he referred to the "slave of some defunct economist" - i.e. the conventional wisdom which people use to justify ignoring living economists is usually just the point of view of some dead economist that most professionals ignore : " overall their... advice was unable to overcome Obama's own instinct toward austerity and low deficits and structural reform."

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  5. Anonymous5:21 AM

    "Most Americans still seem to believe, for example, that free trade is not always a good thing"

    That's because they are right. It is not ALWAYS a good thing. How many economists do you know say the theory of comparative advantage "proves" free trade is good and leave it at that. That is not balanced evidenced based enquiry.

    The truth is that most countries, even when they were growing their fastest (that includes Germany, Japan, the United States in the C19, and even, Britain, practiced policies of trade protectionism. That is easy to show with data and primary documentation, and historians (especially historians in history departments) do exactly that.

    The argument is not whether there was trade protectionism, but was that trade protectionism an important factor in explaining the high growth and industrialisation.

    It is a pity that historical and other non-model based enquiry is at the margins in economics. It is behind a lot of the problems.

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    1. This is such a wonderful post I hope Noah reads and considers it carefully.

      Free trade will always look like a good thing if you're looking just at some imperfect equations or sticking to a single ideology--but if you look at messy reality, you quickly see that the strongest societies have had closed borders and careful protection and control of trade. This goes back to Rome and is true of every society on Earth. Why are we all now living on land that was once taken from native Americans who were killed by our ancestors? They could not or chose not to control their borders.

      The sad reality is that we do not live in some fairy tale where we all want to peacefully trade with each other (and if you think the history of free trade was peaceful, read about Indonesia). The real world is messy, and economists too often fail to realize this.

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    2. Anonymous7:33 PM

      Also, all policies have winners and losers. There are no known policies that benefit *everyone*. This should be easy to disprove. But good luck with that. People have different preferences. There are masochists in the world. You just need one coherent example, though, to disprove me. Just one "black swan" to show all swans aren't white. Show me that policy that benefits *everyone*.

      And of course, even beyond that grand claim, the idea that every single person on an individual basis is better off through free trade is preposterous. Not only can you find one counterexample, I dare say you'd find millions.

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    3. Show me that policy that benefits *everyone*.

      ...comment moderation?

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    4. I know you're being snarky, but comment moderation does not benefit everyone. In the least. Consider, for instance, a radical fundamentalist terrorist blog that incites readers to commit acts of random violence. Anyone whose comments disagree with the violence of the movement instantly has their comments deleted and/or is banned.

      It doesn't even have to be such an extreme case. An extreme right-wing blog can moderate other voices into silence, thereby cementing the extremism of the majority.

      But, yeah, I know that was snark. I wish you'd take Anonymous more seriously--s/he has a really, really good point.

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    5. Anonymous10:59 PM

      As Anonymous 5.21 says, it seems that most, if not all, countries had protectionist policies during their industrialisation phases. The issue is, was that a contributing factor explaining their success. Just as many countries had them and succeeded (Europe the US and the Far East) many others also had them and failed (South America). The point when it comes down to the historical evidence as Michael Foster points out, the story is messy. Indonesia is actually a good example. When a export controls on staple commodities - like rice - are removed, it effects a large proportion of the population, with deleterious economic and political effects throughout the economy, and can actually hamper sustainable growth.

      It is questionable, for example, whether free trade policy and the removal of such supports would be advisable in a country like Egypt.

      The Japanese story is interesting, just as there were a few examples of the Government "picking winners", it also picked a lot of "losers". Some are arguing that actually redistributive effect of supporting laggard industries was good in maintaining a skill base to support growing industries.

      It is interesting to see the Orthodoxy, even the IMF, is now arguing that capital controls are sometimes an appropriate measure. They were not saying this 20 years ago. Remember during the Asian financial crisis they were asking for further deregulation!

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    6. Anonymous11:26 PM

      Further to Anonymous 10.59 - just to explain. The effect of removing export controls on staple products like rice in Indonesia is to push up its price on the domestic market, hitting the poor - most of the population. Importation of rice puts a lot of small farmers out of business - also a sizeable part of the population. The effect is movement into cities, with further unsustainable economic and political effects.

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    7. Trade can have NET benefits to the economy and does. Under NAFTA the Net benefits were supposed to be SHARED with those who were displaced. They were not. They were pocketed by Malefactors of Great Weath who claim all the net gain and deny that any share is due the displaced or anyone else. As in, "its your money" "class warfare" "redistribution" "Welfare for the Takers".

      The agreement was to make trade rules that would benefit a few, but also that part of the windfall profit was due to the Greater Ecomony. Once they Malefactors reneged on the agreement have stolen all our money. They laugh at us for making a stupid agreement an not enforcing it.

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    8. All a nutshell of Ha-Joon Chang's "Bad Samaritans" but perhaps he's too heterodox to matter.

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    9. Anonymous5:19 AM

      "Under NAFTA the Net benefits were supposed to be SHARED with those who were displaced.*

      It is not always true that compensating the losers from trade liberalisation is optimal (I use that term in a social, not economic sense) especially through cross subsidisation . For example, it may be better to keep them in work, even it it is in an inefficient industry, in which case the case for trade liberalisation of that industry may be open to question.

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    10. Actually, no nation has ever industrialized without trade barriers. It's almost weird that there are no counterexamples. Free trade fights against industrialization and most people, other than economists, know this.

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  6. foosion5:28 AM

    I believe Keynes was saying that practical men (businessmen) were saying things that had been shown to be wrong. In other words, he was not saying economists were influential, he was saying that practical men didn't understand economics.

    Free trade is not always a good thing. It increases the total economy, but changes distribution. Without a means to share that increase with those made worse off, you could have a small number of people made better off and a very large number worse off. You could also have many made slightly better off and some number much worse off.

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  7. Laffer's "outsized influence" wasn't due to politicians or the public understanding his 'ideas', his ideas conveniently supported an ideology searching for a justification.

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    1. It makes sense. You raise taxes too much and revenues are stunted because there is no incentive to create enterprise. There is an optimal tax rate given by the curve.

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    2. There is an optimal tax rate given by the curve.

      Except that no one knows the actual shape of the curve - it is an inverted U and may well be true in the long run - and no one knows what the optimal tax rate is.

      The Laffer curve talks about the optimum tax rate being the rate that maximizes tax revenue. That may not be the point that maximizes social utility.

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    3. Wonks Anonymous2:00 PM

      Even Laffer doesn't seem to believe that we are on the right half of the curve (i.e he thinks raising tax rates would raise revenue). Though my last recollection of him saying that was during the Bush admin.

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  8. This comment has been removed by the author.

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  9. I think it depends. I mean if a person is influential on an academic level, then it's possible that they can end up packing government agencies and so forth over time. I mean, Paul Samuelson was never a huge public intellectual, but he was a large influence. It happens a lot faster if what you're saying is convenient.

    I still like pointing out that nobody ever fought a Cold War over astronomy though.

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  10. Anonymous9:48 AM

    Not sure if it's just me, but your picture appears to be broken.

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  11. Anonymous10:12 AM

    I think you're misunderstanding Keynes' point. He is saying that despite appearances to the contrary, the ideas of economists (and other academics) are very important to shaping the public debate. You are essentially saying, "Sure, but appearances seem to contradict this."

    I read Keynes as saying not that current economists play a big role in shaping the current debate, but that the current debate is informed by ideas of past thinkers. Thus the business columnists, opinion writers, politicians, and policy insiders who drive the current public debate utilize mental models of the economy that they learned in college or soaked up via osmosis from their current environments, and which ultimately originate in "academic scribblings" of yore.

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    1. Anonymous10:15 AM

      Here is how the quote continues:

      "Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil."

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  12. Anonymous10:20 AM

    I think Occupy Wall Street has been seriously let down by economists. There are strong economic arguments that the free-for-all allowed for finance went too far. Without macroeconomic gravitas though, they remain unfocussed in the presentation of their ideas. Keynes, I am sure, would be very sympathetic to what they are saying. And don't look to Krugman. He appears to be quite chummy with economists at Goldman Sachs.

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  13. Thank you Noah. Thank you for correctly writing, "With regard to the general public" and not "With regards to the general public".

    That is all.

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  14. Anonymous5:03 PM

    Economists have served their overlords well. Contestable markets theory (Baumol) was funded by AT&T trying to avoid the breakup. Much of modern antitrust was put forward to argue big isn't bad and justify 4 to 3 mergers. Economists have had a big effect on the law and legal theory. Economists have also justified the neo-liberal agenda of free trade and free flow of capital that has defined the last 40 years..

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    1. Anonymous6:18 AM

      I don't think you will find many economist who cheer on throwing homosexuals in prison (or some other unfortunate group who is not a danger to society). What economist do you see support that view?

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    2. Anonymous7:09 AM

      What economist do you see support that view?

      Hopefully they wouldn't even if the argument was expressed in terms of a Fully Specified Dynamic Stochastic General Equilibrium Optimization Model.

      Delete
  15. But do economists influence strongly people in power -- or provide them strong cover and justification for what they really want to do, and who they really want to cater to. And these people in power include politicians, opinion leaders, and VSPs, people who do have great power to do things and change things.

    Would the whole right wing dominance, that did such monumental and profound harm over a generation, have been nearly as strong and lasting without the intellectual cover and justification coming from economists like Martin Feldstein and Robert Barro, economists whose sect concurrently began domination of economics at right about the same time. And perhaps not at all coincidentally, they have had their dominance move very similarly to the dominance of the political right, which is weakening substantially right at about the same time.

    Here's Krugman related to this, in his 1994 book Peddling Prosperity:

    In the world of politics, however, the actual content of an academic movement may be less important than the way it affects the tone of discussion. During the 70s there was a growing sense of disillusionment with the government...No matter how careful the research of conservative public finance theorists like Martin Feldstein might be, in that political climate it was inevitable that it would be widely seen as basically confirming popular prejudices. There was a huge intellectual gulf between Feldstein and Boskin and the sweeping claims of Arthur Laffer; but in the public mind they were in effect allies. (pg. 75)

    Judges also have an enormous effect. The patents court with its profoundly harmful rulings, the right wing that controls our Supreme Court. And they regularly use the economics of the Feldstein/Barro/Prescott/Fama era of dominance to justify the profoundly powerful and harmful rulings they make.

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    1. And I should have included the horrible stunting that comes from regulators extreme reluctance to impose anti-trust measures. And again, right wing economists are used to justify this, and I think their cover has probably made a big difference here.

      On the plus side (for the most part), the almost unilateral support of economists for free trade has almost certainly helped greatly over the long run to further free trade. For example, smart, well educated and intentioned, extremely powerful politicians like Bill Clinton, would never have utilized so much political capital for that cause if not for the strong arguments and unified front of economists.

      I'd also bet Keynes and others in his camp had a big influence on FDR and other powerful Democrats of his era.

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    2. I've been reading Emmanuel Todd's 1976 book on the likelihood of the fall of the Soviet Union, the final fall, and he points out that the USSR faced an inherent instability fueled by the disconnect between the economic theorists who had the ear of the elite and the actual economic situation. No, the theorists weren't Marxists, though they pro-forma used Marxist terminology. He, like anyone else who was watching the USSR back then, realized that economic theorists in the service of an elite have a great deal of power and influence. (Todd had a 10-30 time frame for the collapse, in case you are wondering.)

      The US has similar problems today. Since the 1980s, our elite has been listening to economists who propound theories that have little or no basis in reality. Sorry, but free trade has been a disaster. Cutting taxes and deregulating have not produced the promised benefits. Like the USSR, the US is locked into maintaining a huge military and security state to provide an excuse for failing to raise living standards. I'm not sure what time frame we are talking about, but it isn't sustainable.

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  16. Anonymous6:59 AM

    Dean Baker just documented what he calls the DC double standard that places a big thumb on the scale of which proposals get news coverage. Why do fake budgets (that don't add up, or won't ever become legislated) and plans to propose bills, manage to get news coverage, but even nytimes has not written a word on CPC budget proposal released last week (Better Off Budget)?

    He notes that no matter the merit of progressive proposals, news media blackouts tell politicians they must move right, to advance, or be ignored.

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  17. Anonymous7:00 AM

    oops, link to Dean Baker's Guardian article:
    http://www.theguardian.com/commentisfree/2014/mar/17/paul-ryan-budget-vs-congressional-progressive-caucus

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  18. You might ask a similar question about science. Science has some influence on our ideas. However, the large number of creationists, global warming deniers, cigarettes cause cancer deniers (tho most of those have died off) vaccine truthers &c &c suggests that people get a lot of ideas from "non-experts" celebrities and hucksters who have a spend a lot of money on proselytization. Strong priors often win out over reasoned position.

    Economists can train politicians and have influence. Paul Ryan learned his economics from a professor who was avowed Randian Libertarian. Sometimes bad or misguided economists can have inordinate influence. With politicians, it depends or whether someone is trained by a conventional or a contrarian economists or wannabe.

    Sometimes, the conventional turns out to be wrong as in Friedman and Schwartz. They have been proved wrong about monetary policy causing the Great Depression and wrong about the potency of monetary policy at the ZLB (It's impotent). I do think that Friedman and his more radical disciples drove home the message that "Monetary Policy Alone is sufficient to guide and economy" and that much of our current economic mismanagement is a governing elite that has bought into an idea that is dysfunctional. Economists have a lot of influence but there is not consensus and there is is plenty of influence by economic ideas that have been debunked and are no longer credible.

    -jonny bakho

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    1. jonny,

      Where and by whom pray tell have Friedman and Schwartz been "proved wrong about monetary policy causing the Great Depression"? It may not have initiated it, but I believe that it is still widely accepted that the Fed's failure in the summer and fall of 1931 to offset the massive monetary contraction entering the US from abroad in the wake of the Creditanstalt collapse in May, 1931 was an enormously important factor in turning what had up until then been a bad recession, with the unemployment rate in the US at 8% in January, 1931, into the Great Depression, with the US UR at 15% by the end of the year, still higher than any seen since the GD ended.

      Barkley Rosser

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    2. Beranke tried expanded monetary policy and QE still has not yet closed the GDP gap or returned us to full employment. According to F&S monetary policy alone should have been enough to rapidly return to full employment and close the GDP gap even without the pathetically low fiscal stimlus. Monetary policy has been helpful, but fiscal policy needs to be bigger, not an afterthought as Friedman and his disciples have claimed.

      Monetary policy is useful for rapidly fine tuning an economy period. When an economy has major shocks, Fiscal and Regulatory policy are the policies of choice. From our current position, it would take a large amount of fiscal stimulus to return the US economy to full employment. F&S were wrong. Monetary policy is not up to the task.

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    3. bakho,

      I did not claim that Friedmanite monetarism holds water today. Even Uncle Miltie got over it before he died and admitted that V had gone blooey and so finally switched to supporting inflation targeting rather than his old emphasis on having some M grow at a steady rate. I simply noted that your claim about F&S about monetary policy and the Great Depression was not so widely accepted and that it looked it played a big role, particularly in the crucial year of 1931, the one that was very much on Gentle Ben's mind once the Minsky Moment really hit the fan in September, 2008, although right up to it, he was still not fully on board regarding what was going down, in contrast to Yellen and Rosengren and Kohn, or so the recently released transcripts tell us, in sharp contrast to some others who were still out to lunch at that time, such as Lacker and Plosser. In any case, F&S look right on the money that failure to expand M especially in September 1931 was especially catastrophic, which would also have been the case 77 years later if the "fight inflation now" gang had had their way.

      You have simply ignored my point that you are simply dead wrong on this point. Most economists think they were right on this point and that this was a moment of truth above all others in what gave us Hitler In Office in Germany and all that transpired from that particularly unfortunate event.

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    4. The events of the last decade tell us our economic models were not predictive. Why were they wrong? What would be a better framework? I support fiscal and regulatory policy when big changes are needed in an economy. I believe regulatory policy is very important to managining an economy and is understudies and underutilized. Monetary policy is useful for the mundane week to week management to keep the economy in a sweet spot. Monetary policy is not the one economic tool to rule them all as promoted by Milton Friedman and taken excess by his disciples.

      Events like the Great Depression and the Great Recession occur when prices are maladjusted, typically some commodity that is basic to the economy is overpriced: a bubble that bursts, and an economy is in a state where relative prices need to reset rapidly. Two mechanisms allow relative prices to reset rapidly and less painfully: a floating exchange rate and inflation.

      Where Friedman was wrong:
      ““We did not permit the inflow of gold to expand the U.S. money stock. We not only sterilized it, we went much further. Our money stock moved perversely, going down as the gold stock went up.” and “The blind, undesigned, and quasi-automatic working of the gold standard turned out to produce a greater measure of predictability and regularity—perhaps because its discipline was impersonal and inescapable—than did deliberate and conscious control exercised within institutional arrangements intended to promote monetary stability.” Friedman and Schwartz.

      Most countries in 1931 were on the gold standard that fixed exchange rates. Countries that left the gold standard were able to quickly adjust the relative pricing between labor and imports. It is easier to adjust relative pricing by raising import costs through exchange rates than to reduce wages or add tariffs. Currently, the US needs some currency devaluation to achieve trade balance: oil needs to become more expensive. The EU suffers from a common currency a no way to reset relative pricing between countries.

      “There is absolutely no positive objective achieved by the minimum wage law.” - Milton Friedman

      In our current economic state, monetary policy is impotent. Why? Lack of demand, not interest rates is the main barrier to investment. Lack of demand is cured by wage inflation and resetting relative pricing. Inflation should not be constant. Inflation should increase when relative prices maladjusted and decrease when relative prices are well adjusted. Monetary policy is good at braking wage inflation by creating unemployment, but very poor at increasing wage inflation. Wage inflation at the ZLB requires robust fiscal policy: automatic stabilizers (these are inadequate and were overwhelmed in the Great Recession) transfer payments and increasing demand by moving infrastructure and workforce development projects from the future to the present. Subsidies (Health care, Education) are a good indirect means of increasing effective wages. Regulatory changes such as MinWage increase are an important tool for boosting wage inflation.

      Wage inflation is the necessary stimulus to increase demand. If wages and prices rise relative the the commodity that has collapsed (stock bubble, housing bubble) it has important effects on demand, investment risk, debt default etc. Inflation much higher than 2 percent should not be a problem because investors and savers have mechanisms to protect against inflation. Those who benefitted from the bubble get very low returns (deservedly so) during the adjustment period but do not lose as much of the money sunk in the investment.

      The Great Depression was not cured by monetary policy but by changes to fiscal and regulatory policy. The US left the gold standard. WWII military production was one of the largest government stimulus programs and the GI Bill was the largest investment in workforce development in US history, even larger than the New Deal programs combined. These helped to right the economy. Monetary policy had less to do with it. - jonny bakho

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    5. bakho,

      Sorry you are wrong about F&S on monetery policy in 1931. You think it was fine that the Fed failed to expand M as gold flowed in? Also, MF supported floating exchange rates.

      On other matters you are either correct or not obviously wrong.

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    6. MF compared floating exchange rates to Daylight savings time and was ok with floating exchange. He thought under ideal conditions, a gold standard could work but conditions were never ideal. He got that floating exchange was important, but marginalized the importance of resetting relative prices upward. F&S undervalued the effect of leaving the gold standard on economic improvement.

      Expanding the money supply could have helped but as we saw in 2008 it is not enough. It failed to create the necessary inflation to allow relative prices to reset. We had a deep recession and low inflation in spite of monetary expansion when we needed much higher wage inflation. Even with QE the Fed routinely undershoots its inflation target, making the situation worse.

      Many of the problems in 1930s were due to lack of automatic fiscal stabilizers, transfer payments and deposit insurance, all of which were very important in 2008 but not nearly large enough. Monetary policy is important but it is not enough. Monetary policy, no matter how good cannot compensate for bad fiscal and regulatory policy. Most of the problems in the 1930s were regulatory, fiscal and aversion to debt, even when borrowing is cheap. WWII ended aversion to debt as massive fiscal spending was needed for war effort. The causes and cures for the GD were mostly fiscal and regulatory, not monetary.

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  19. Anonymous10:05 AM

    I don't know why anyone else believes that free trade isn't always a good thing, but if you want to convince me it is, point me at a model that embodies the beliefs I actually hold, namely:

    1) Declining marginal utility of money

    2) Loss aversion

    3) 1 + 2 => greater utility loss to losers than gain to winners

    4) No compensation of losers

    5) Persistant unemployment

    6) Increasing returns to scale

    7) Network effects

    8) Endogenous comparative advantage (last, but far from least)

    and, perhaps, that since I'm an American legislator I should worry about Americans and not others. I realize that there is little justification for this last in ethical theory.

    Anyway, what model incorporates these assumptions and what are its policy implications? It's certainly not Heckscher-Ohlin.

    As for influential thinkers, IMHO if David Brooks, Thomas Friedman, and Malcolm Gladwell are considered thinkers we're all doomed (although Friedman might have qualified once.) Ray Kurzwell? Niall Ferguson? The lists you've pointed me at are going to depress me all day.

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  20. I'm going to throw this one out there, and it is a bit dated. There was one economist who was powerful because of his position in politics: Phil Graham.

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  21. Anonymous1:36 PM

    The following gives away Krugman's approach to analysis.

    "But you can’t be an effective fox just by letting the data speak for itself — because it never does. You use data to inform your analysis, you let it tell you that your pet hypothesis is wrong, but data are never a substitute for hard thinking. If you think the data are speaking for themselves, what you’re really doing is implicit theorizing, which is a really bad idea (because you can’t test your assumptions if you don’t even know what you’re assuming.)"

    He might be supremely good economist. But he would not make a good historian. An historian would start from the bottom up and may simply end up repeating the methodological approach and steps of analysis of someone else and get the same result - by coincidence. That is fine, but you never go out to confirm or disprove a theory (or to use the economist's grating buzzword - a model). For very good reasons. You never let a model dictate the terms or parameters of your analysis. In fact you do not use a model at all because that is what it will do.

    It is true that data and primary documentary evidence will often not speak for itself. You need context. And the context, not the model, is everything. A model that speaks for the data is actually even worse than the data speaking for itself.

    Creating a theory after your investigation that can be tested, or testing your own analysis against an existing theory ("model") as a reference point is another matter.

    But you never start with a model, let alone a "pet" one.

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    1. Anonymous3:47 PM

      Although at least Krugman does consider the evidence more important than consistency with questionable micro-economic foundations.

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    2. Wow, that is perhaps the most credulous idea I have read in a long time.

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  22. Anonymous12:08 AM

    To a point but observing economists including Noah (especially, this dude is so painfully tribalistic and a horrible economist) and others people of his tribe or others of the opposite tribes like say Austrians , economists like most people, first choose the world view they find most convenient to themselves, then invent some half baked economic reasoning for it. They are more politicians and charlatans than real scientists.

    What political economic ideology is fashionable at the time and is inevitably advanced by economists, gains tranction. Of course some economists are closer to not being a charlatan than others. But most of them are politicians who are all about justifying their political tribe or economic tribe. This is a bad thing because the economic theory that is put to practice has many blind spots and is flawed. This happens because these people have those blind spots and are doing a bad job. They are not the least bit professional.

    Sure one could say we don't know as much about economics than we do in actual sciences but this is also partly the fault of economists playing and thinking like politicians and letting their biases in.

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  23. Keynes Is Right. You Are Talking Past Him With This Post.

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  24. George Stigler argued that ideas about economic reform needed to wait for a market.

    Stigler contended that economists exert a minor and scarcely detectable independent influence on the societies in which they live. As is well know, Stigler in the 1970s toasted Milton Friedman at a dinner in his honour by saying: "Milton, if you hadn't been born, it wouldn't have made any difference.”

    Stigler said that if Richard Cobden had spoken only Yiddish, and with a stammer, and Robert Peel had been a narrow, stupid man, England would have still have repealed the corn laws and moved toward free trade in grain as its agricultural classes declined and its manufacturing and commercial classes grew in the 1840s onwards because of the industrial revolution.

    As Stigler noted, when their day comes, economists seem to be the leaders of public opinion. But when the views of economists are not so congenial to the current requirements of special interest groups, these economists are left to be the writers of letters to the editor in provincial newspapers.

    These days, they would run an angry blog.

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  25. "How about elite opinion? People like Larry Summers and Christina Romer certainly seem to have some sway over the Obama administration, but overall their Keynesian advice was unable to overcome Obama's own instinct toward austerity and low deficits and structural reform."

    A big thing that's constantly missed, or ignored, is political capital; and related, what's practically possible, in the reasons for what a politician does and says.

    At the very least, Obama's clearly shown himself to super-understand the importance and profound value of high-social-return investment. I'm sure he would have loved a stimulus in the multiple trillions in basic scientific and medical research, smart education spending, universal high quality pre-school, like Montessori method, daycare, and prenatal care, and high nutrition, smart infrastructure, etc. But better to go for what has a good chance of passing, then what has no chance of passing and getting nothing, and then really hurting your and your party's political capital the way our disgraceful traditional press works.

    The Democratic Presidents and party leaders are usually very smart and good people; in the case of Clinton freaky smart, politically adept, and a good well-intentioned person all in one. And Obama's pretty amazing in those regards too. What top economists say (who are objective and care about the greater good, not plutocrat or libertarian economists) really influences people like this who have great power. It influences what they'd like. But what they push for depends on what's possible, and on the cost in political capital. But the more economists say it's good the more they will be willing to expend political capital. The economists have an enormous influence from what I've seen in how Democratic Presidents and party leaders will spend their political capital, from FDR to Kennedy to Clinton to Obama.

    I think Obama was greatly influenced by Grueber and others on healthcare. Grueber I think said said that single payer is much better, but something like in Massachusetts is still a huge step forward, much better than what we have. Had he instead said it's barely better than what we have, then Obama would have made a very different calculation. He wouldn't have gone for it with maximum force and political capital. He might have found it a better optimization of his political resources to go for a move toward single payer, like lowering the Medicare age to 55 and/or Medicare for all children.

    By influencing smart leaders who care about the greater good (as opposed to libertarianism or plutocracy), this is where economists have their most powerful influence, and it's a monumental one I think history shows. And most Democratic leaders fit this bill. FDR, Kennedy, even Carter was still a pretty smart man, and cared about the greater good; Clinton was a historically freaky combination of intellect, charisma, energy, drive, and good intentions (even though the ladies were his kryptonite, and he certainly had his personal flaws), and Obama, such an impressive combination of intellect, character, and goodness. These people really take into account what the field of economics and their top economic advisors say in deciding how to optimize their scare political capital with political and practical constraints.

    Of course, if economists and writers can affect public attitudes this provides the leaders with much more political capital to do what the economists advocate.

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  26. "Art Laffer certainly seemed to have an outsized influence over Reagan and the GOP, but he's "the exception that proves the rule" (meaning, of course, that he's by far the biggest exception I can think of off the top of my head)."

    It's different with the right, libertarians, and plutocrats. With Democrats, for the most part they're utilitarian and pragmatic. They look to science to find more efficient ways to improve the greater good, and aren't, for the most part, really wedded to any particular methods. They're pretty practical and pragmatic. For the right, they're highly dogmatic and simple-minded. They look to people like Laffer and Feldstien not to learn, but to help sell their dogma, or support it. Libertarians, at least extreme ones, aren't really influenced by what economists have to say. This policy or that might increase GDP a lot, lower unemployment a lot, but all that really matters is, is there unanimous consent, or how close is it to it, everything else is of relatively little or no importance, as ugly as that is. Plutocrats care about what economists have to say only to the extent that it can make the rich even richer, not what it means for the economy as a whole. So there's far less that economists can discover and teach that will influence these groups.

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    Replies
    1. Anonymous6:47 AM

      It's not just the Republicans who are part of the corporate state, the Democrats, or in general most centre-left parties worldwide, have sold out as well.

      Just take a look at where Wallstreet money is flowing to, consider the analysis of Obama being a brand or think about how the persecution of whistle-blowers and the rise of the deep state, i.e. intelligence agencies, has been intensified under Obama.

      The first thing people who are for the rule of law and reality-based policies have to do is severe their ties with the Democratic Party. Being the lesser evil is hardly an argument.

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    2. The Democrats have a progressive caucus that is not beholden to corporate interests. This group works to the benefit of the 99 percent. Those interested in progress need to strengthen this group.

      The Republicans have noone who is not in lockstep with corporate interests. Republicans promote corporate greed and class warfare in the hope their patrons will win and offer them a share of the spoils.

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  27. As a young person who didn't live through the Reagan years, and whose political education grew concurrently with economics education, I've thought for years that the philosophy of the American right was based on a freshman-level understanding of freshman-level economics.

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  28. "Our economic policy discussions are nearly always focused on making us wealthier and on generating the economic growth to accomplish that. Great debates rage about whether to raise or lower interest rates, or increase or decrease regulation, and our political system has been paralyzed by a bitter ideological struggle over the budget. But there is too little debate about what it is all for. Hardly anyone ever asks: What kind of growth do we want? What does “wealth” mean? And what will it do for our lives."

    This is Beinhocker, I think.

    Most people, I think, would also consider that there is a moral dimension to consumption. Yet "revealed preference" has become so sacrosanct that fatuous and self-indulgent forms of status competition are treated as above criticism.

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  29. Anonymous10:03 AM

    Another good, relevant quote:

    "I don't care who writes a nation's laws—or crafts its advanced treaties—if I can write its economics textbooks." -- Paul Samuelson

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  30. Noah you made a mistake. In the article that you linked to with "most influential thinkers" it says the opposite of what you claimed! See below:

    "Frick and co also have a couple of tips for aspiring thought leaders. First, become an economist. Twenty-four of the leading thinkers are economists compared to the next most common discipline, political theory, which had only eight. There are only five biologists, three physicists and two chemists on the list. "

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