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The Trouble With Economics

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"The Trouble With Economics"

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I’ve seen a lot of people over the past few weeks expressing bafflement that economists have such strong disagreements about questions like the stimulus. Arnold Kling gets at some of what’s going on:

My take on this is that the consensus of economists is likely to be more reliable on microeconomic issues than it is on macroeconomic issues. In my view, fundamental macroeconomic issues are unsettled. It makes sense to have what a Bayesian statistician would call “diffuse priors” and what an ordinary layman would call an open mind. [...] What is important to bear in mind is that just because economists cannot settle disputes about macro does not mean that all of economics is bunk or that nowhere is there a reliable consensus in economics. Macroeconomics is only one area of economics. In my view, it is the area with the highest ratio of unresolved issues to settled questions.

Relatedly, I think that if the President got an ideologically diverse group of economists together and said “I’m going to impose a $800 billion stimulus package through some mystical process that doesn’t involve the need for congressional approval; I want to maximize short-term GDP boost per dollar spent and minimize long-term harm due to budget deficits, what should I do?” that you’d find some important areas of common ground. Not universal, immediate consensus. But I think important common ground and ideas that would be importantly different from what you’d get by pulling an ideologically diverse group of members of the U.S. House of Representatives together. Issues arise not only because economists disagree about the big macro questions (like “should we do a stimulus”) but because if a practical politician is going to increase the deficit by $800 billion he’s damn sure going to make sure he advances some of his other goals in the realms of public policy and crass politics. And economists are going to have all kinds of disagreements about that kind of stuff. But that isn’t actually economics. But it’s also not just some kind of unfortunate reality intruding on pristine policy considerations, it makes perfect sense that you’d try to advance other policy objectives. It just means that these “economic policy” disputes are about a lot more than economics.

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