Thursday, January 10, 2013

Is the Economics Profession Divided? - No, It Just Looks That Way

A Few Media Stars Are Driven by Politics – The Rest by Logic and Research

During the past four years one could get the impression that there was an immense divide among economists, that about half believed in basic Keynesian theory and policy and the other half believed in basic conservative dogma.  It turns out this is just not true as a panel at the recent AEA meetings showed.

But even on the question of stimulus, most of the surveyed economists (80%) agreed that Obama's 2009 stimulus boosted output and employment (though fewer agreed that this boost was worth the long-term costs). So it seems that the few top economists who a few years ago were loudly saying that stimulus couldn't possibly work - Bob Lucas, Robert Barro, Gene Fama, etc. - were just a very vocal small minority.

So what is going on here?  According to the pages of conservative publications like the Wall Street Journal there is a whole body of economists opposed to the current administration’s economic policy.  The answer of course is that are just a few, somewhat prominent economists who for political rather than analytical reasons spout economic nonsense.  So yes, the Stimulus did create economic growth; expansionary monetary policy does not create inflation during a recession;  deficits do not lead to ‘bond vigilantes’ causing a huge rise in the cost of government borrowing and so forth. 

In other words, almost all of the forecasts, pronouncements and conclusions of so-called conservative economists have been wrong.  So why haven’t these supposedly honest men and women recanted, or at least revised their conclusions and opinions?  Because that would mean admitting their core philosophy was wrong, and since their positions are based on faith rather than empiricism, it cannot be wrong.

In the meantime one can only hope that they never get to influence public policy. Because then the U. S. will really start to look like Greece, which is the recipient of their policy today.

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