Economics: The Dismal Profession
Arvind Subramanian writes recently in the FT that the field of economics has “made amends” for failing to predict the economic crisis by producing effective solutions for managing it. The fact that a depression was avoided indicates that, for all its flaws, economics has contributed positively.
For sure, we have not learnt all the lessons; we may even have learnt some wrong ones. It is also probable that we are setting the stage for future crises, not least because we are still groping for ways to tame finance. So, economics is bound to fail again. But the avoidance of the Greatest Depression that could so easily have happened in 2009 is an outcome the world owes to economics; at the least, it is the discipline’s atonement for allowing the crisis of 2008 to unfold.
So in other words, economics has been harmful, except it has been beneficial. Only an economist (or, maybe better, an academic) could make illogic seem so logical. It is, after all, “probable that we are setting the stage for future crises,” but hey, “the avoidance of the Greatest Depression… is an outcome the world owes to economics.”
I am reminded of the line that many have used to criticize Ben Bernanke’s recent elevation in stature: the arsonist is rewarded for putting out his own fire. Just replace Bernanke with the entire economics profession over the last 40 years, and you can’t tell the difference. To be sure, there are many brilliant economists who have enhanced knowledge to various degrees in recent decades. And not all economists have subscribed to the neoliberal, neoclassical orthodoxy that laid the foundation for this crisis. But enough did that we can characterize the overall field as deeply flawed.
As I have said, this field has thus far demonstrated little to no propensity to change its tone. We see no meaningful shift in the debate between left-of-center and right-of-center economists; so far, they are debating the same old issues they’ve been debating for years. Large figures like Paul Krugman have, as expected, begun to ask the hard questions and think outside of the box. But where are the rest of them?
In a way, this lack of sufficient self-reflection is understandable in any academic field that is dominated by pride, tenure, seniority and elitism. Despite this, one would expect a massive, intellectually unavoidable disruption to the status quo and the established “models” to prompt some real, solid soul-searching in any such discipline.
The fact that there has been no such soul-searching is troubling, to say the least. These are, after all, the same people who are spinning the intellectual yarn from which an extremely fundamental component of our social order is made, and will continue to be made.
The global economic system came to the brink of collapse. And yet, the same, tired old rightist and leftist politicians are having essentially the same, tired old debates they were having 1 or 2 years ago about state involvement and welfare checks. Surprise, surprise, they are prescribing the same, tired old policies (Lower taxes! No, more regulation!). Meanwhile, the supposed intellectual keepers of the system are asleep at the wheel.
So the economic system came close to collapse. And Jimmy cracked corn, and they don’t seem to care. Subramanian’s pride in his field is misplaced. It is far from clear that the crisis is really “over.” If he really wants to help avoid the next crisis, and do something good for the world, he would do better by getting out his pen and paper and reconsidering the Theory of Consumer Choice, rather than writing opinion pieces about how great his failed profession is.
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The question is really how much closer to collapse does the current state of affairs have to come before peole start realising that something has to be done. The crisis was based upon economy being based upon debt, which seems plain off silly. You can’t run an economy on laying people off, debt, no taxes, and cutting expenditures.
There will be a bigger fall. The question is when?
Right, Laci, the question is not if, but when, given the fundamentally flawed nature of the economic system in the US (and UK, as well). Unfortunately, but predictably, the political leaders have continued to work within the “conventional wisdom” in which more “stimulus” and more debt and more borrowing and lending is the path to getting the economy out of trouble. This is an inherently unsustainable path. You don’t get out of a ditch by digging some more. Sooner or later, it will blow up in everyone’s face.