Earth to Talking Heads: Cutting through the punditry on economics
(formerly: Pundit's Guide to Economics)
Chapter 2: Don’t Take These Guys Too Seriously
The pundit should view a Ph.D in economics as she would a higher degree in Astrology. An audience wearing the signs of the zodiac on their tee shirts or a sponsor with a silver ring that looks vaguely like an omega might indicate a wider deference is due, but at a practical level, the pundit should realize that the foundations of economics in science are shaky, and not too much should be ceded when sharing the set with the economist. At a minimum, the pundit should avoid the phrase, “I am not an economist, but….” The other may exhibit a corduroy jacket or bow tie or reference an obscure datum, but the expertise of the economist is confined largely to a realm of classroom fantasy, where all things are possible, and the pundit will have the advantage in the real world. Challenge must not be too overt, but often a simple reference to actual events is enough, and the economist will complete the picture in confusion or contradiction or in platitudes, and may be prompted to reveal the embarrassing assumptions underlying such a view.
The unwillingness of the economics profession to change, even in the face of overwhelming failure as from the Great Financial Crisis and aftermath, puzzles and frustrates many a pundit. Economics ought to be most the most contemporary science, but updating thinking to fit the facts seems to be a low form of treason to many in the profession. It is true, economics and politics are entwined, along with the legions of adherents to inappropriate metaphors. Part is due to the serious self-interest of high stakes finance in the current explanation But there is a more personal reason for many economists.
As John Maynard Keynes [pron. John may-NARD KANES], the famous father of macroeconomics, once observed, “It is far better for an economist’s career to be conventionally wrong than it is to be right.” This was again confirmed by the Great Financial Crisis and subsequent economic stagnation. Those who were most profoundly wrong, whose models suggested such a thing could not happen, or when it did, that the recovery would be swift and strong, are still at the heads of the major academic institutions, professional associations and financial bodies. They are still following much the same playbook. Ben Bernanke [ber-NAN-kee] , the Fed chairman at the time of the crisis, did not see it coming. He extolled the “Great Moderation” and said in March 2007, “… the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.” Yet it was Bernanke who led the policy response.
But those in not so public a position fell silent for a time and emerged again with ideology intact when memory of their predictions had been carried downstream. To abandon the professional capital by recanting tenets disproven by events did not appear to be a viable career choice.
Those who were right, who predicted the crisis and its severity, gained only momentary credibility, though far less than warranted the gravity of the events. Some, like Nouriel Roubini and Peter Schiff, have translated it into lucrative consultancies. Others have not fared so well. And the economics taught and learned in today’s Academia is not significantly different than that taught before its spectacular contradiction by history. The failure to review and revise has left the public not measurably more well-informed. Most major news organizations did not update their rolodexes. Continuity, with audience familiarity and title (the most prominent economists were most wrong) are preferred to the awkward tasks of introducing new faces and setting the context.
[An index of prominent economists past and present is provided later]