Saturday, July 18, 2009

What Good Are Economists, Anyway? (continued): Infighting Among the Macroeconomists

In an earlier post today I noted the Economist's July 16 two-article feature on the shortcomings of economics and economists.

The first of the feature's two articles discusses disagreement and dissent among macroeconomists. Now there has always been disagreement and dissent among macroeconomists. That's why there are multiple schools of macroeconomic thought. In fact, that is what makes a macroeconomics class especially rich--albeit a bit more challenging as well. Students must learn how each school sees the macroeconomic world working, then be able to make policy recommendations consistent with each school's beliefs in response to various economic scenarios.

So the differences have always been there. But recent economic developments (i.e., the "global economic crisis") have highlighted and sharpened these differences, and for the first time economists' skirmishes are being waged right in front of the American public.

ROBERT LUCAS, one of the greatest macroeconomists of his generation, and his followers are “making ancient and basic analytical errors all over the place”. Harvard’s Robert Barro, another towering figure in the discipline, is “making truly boneheaded arguments”. The past 30 years of macroeconomics training at American and British universities were a “costly waste of time”.

To the uninitiated, economics has always been a dismal science. But all these attacks come from within the guild: from Brad DeLong of the University of California, Berkeley; Paul Krugman of Princeton and the New York Times; and Willem Buiter of the London School of Economics (LSE), respectively. The macroeconomic crisis of the past two years is also provoking a crisis of confidence in macroeconomics. In the last of his Lionel Robbins lectures at the LSE on June 10th, Mr Krugman feared that most macroeconomics of the past 30 years was “spectacularly useless at best, and positively harmful at worst”.

These internal critics argue that economists missed the origins of the crisis; failed to appreciate its worst symptoms; and cannot now agree about the cure. In other words, economists misread the economy on the way up, misread it on the way down and now mistake the right way out. . . .

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