Earth to Talking Heads: Cutting through the punditry on economics
(formerly: Pundit's Guide to Economics)
[Continued from Chapter 2: Don’t Take These Guys Too Seriously]
The pundit will be challenged as he or she engages economists in four major ways:
- The most wrong and the most recalcitrant are also the best sponsored, and the pundit’s sponsors may be among them.
- Academic economics is in a realm of its own that is divorced from activities of the real world while at the same time rigorous about enforcing its discipline upon the acolytes.
- The most prominent economists – including those at the Treasury, Federal Reserve and on Wall Street – almost universally subscribe to a version of economics which – hold onto your hat – does not include money, credit, or banking.
- Those who were right and timely in their predictions are excluded from the conversation, so if it is not already obvious, a pundit adopting those explanations may find himself being excluded.
Summarizing the first point, and epitomizing the influence of politics and entrenched financial power was Supply Side Economics, an economic fad of the late 1970s and early 1980s. Supply Side came directly off the pages of the Wall Street Journal and enjoyed a brief window of credibility to serve as justification for the Reaganomics. The politics required a compliant economic rationale, the rationale demanded compliant facts, and when the facts refused to cooperate, they were ignored and a further search for facts undertaken until the large-scale adoption of the metaphor disposed of the need for facts. Supply Side tenets are still the bedrock of many conservatives today, which has more with the power of myth than support from any legitimate academic or policy expert. (A similar phenomenon exists with respect to climate science.)
Academic economics has now grown to be highly mathematical and highly obscure. Its utility is open to question on every side. But from time to time conventional economics has actually worked. From the Great Depression through the 1960s a functional economics was practiced in public policy through periods as disparate as the Depression, the mobilization for the Second World War, the transition from war to peace and the emergence of the consumer society. [See an anecdotal history, later in this volume.] Rightly or wrongly, this conventional economics was entitled “Keynesian,” and accorded widespread popular credibility. This “Keynesian” economics is not the economics of today, nor ironically was it substantially the economics of Keynes. This was the “Neoclassical Synthesis,” an attempt to meld the previous orthodoxy with Keynesianism under the guise of mathematical rigor. Keynes’ close associate Joan Robinson used the label “bastard Keynesianism” in reference to the economics of the 1950s and 1960s, for its not being truly fathered by Keynes’ original concepts.
(This is by no means the last of the problems the pundit will encounter in economic notation. “Neoliberal, for example, is neither new nor liberal. “Rational” in Rational Expectations models refers to a prophetic ability. Robert Lucas won a Nobel Prize for a vision of a society in which everybody shares near perfect ability to predict the future.)
The stagflation of the 1970s was the opening used to convert even this diluted form of Keynesiasm to a resurgent version of the pre-1930s Neoclassical view. “Keynesian” survived in the nominal titles of some Neoclassical schools – “New Keynesian” and “NeoKeynesian”— long after they separated from key concepts. Paul Krugman of Princeton and the New York Times, for example, is a titular New Keynesian who applies a narrow and awkward interpretation – the IS/LM model – in his framework. The developer of the IS/LM, Sir John Hicks, later recanted, or at least allowed he had developed the scheme prior to reading Keynes and the model was not useful in times of uncertainty.
By the 1990s, the reversion was complete. Indeed, it was quite possible – the author experienced this himself – to complete an undergraduate degree in economics from a major state university and not hear the name “Keynes” more than twice, and then not pronounced correctly. That was to change with the Great Financial Crisis, and with the desperate need to reverse a severe crash in the economy.
One study (Bezemer) specified a bare dozen economists, among many thousands who correctly predicted the Great Financial Crisis. None of these followed the orthodox program. Many of them might be described as financial Keynesians, whose understanding derived from a version of the original insights of Keynes that was not reinterpreted, developed through maverick Hyman Minsky.