DeLong on the State of Macroeconomics
A rare post in which I agree wholeheartedly with Brad DeLong (HT2 Bob Roddis):
The Economist gives us economists too much credit…
I would like to draw a distinction between economics as a way of thinking–the way good economists think, at least–and academic economics as a profession. Economics as a way of thinking is, I believe, still very valuable. But academic economics as a profession has proven itself to be not valuable at all in this financial crisis.
Yep. It would be hard to imagine a worse performance by professional economists during the last few years. Follow the link to the Economist pieces to see some examples of how badly the profession botched things.
I’ll go even further, and say that I totally understand why DeLong (and Krugman) think Fama et al. are being crazy in their opposition to fiscal stimulus. They are trying to use accounting tautologies to “prove” that deficit spending can’t reduce unemployment. But that doesn’t work; it’s not necessarily true that “every dollar the government borrows means one fewer dollar spent by the private sector.”
Naturally, I oppose DeLong (and Krugman) in their call for greater fiscal stimulus; I think their recommendations are awful. But as I argued in this article, the real problem is that even if deficit spending (temporarily) reduced unemployment, it would simply delay the sectoral adjustments needed to restore the economy to a sustainable growth path.
Note that I’m not saying deficit spending will always reduce unemployment; I am rather saying that Fama et al. are wrong for claiming that it will necessarily have zero effect on it. In fact, some of the opponents of “stimulus” are trying to have it both ways. Before the plan passed, it seemed (many of them) were saying that government spending would be perfectly counterbalanced by private sector losses, and so the effect on employment should have been nil. And yet now that the stimulus passed and unemployment jumped higher than most were predicting, the critics are saying, “See? We told you this would destroy jobs!” (Of course, there was not a unified voice of criticism of the stimulus package; some people made arguments at the time saying it would “destroy jobs on net.” So those critics could claim justification.)
A lot of people ask me if I think Krugman (and DeLong) are liars or just stupid. They’re certainly not stupid, and I don’t even think they’re necessarily dishonest. After all, they each have thousands of fans who leave comments on their blogs, so presumably it’s not a giant Keynesian conspiracy. Yes they will often make (in my opinion) unfair attacks on their opponents, or will conveniently overlook certain facts that hurt their cases, but there are people on “my” side who do the same thing from time to time.
The one thing that does bother me about these two guys is the ease with which they accuse their intellectual opponents of being stupid and/or evil. Ah well.
