There They Go Again

Sometimes you have to wonder. About economics that is. If you are a politician, no matter how odd your policy, you can find an economist who will provide you with theoretical cover. No wonder the subject is a mess. And no wonder Brad DeLong can say that there is no economic theory as such. All we have to show for over two hundred years of trying is a ton of debate, a mass of complicated math, a seemingly unending torrent of published papers, lots of disagreements, and not much else.

I am prompted into this thought by the recent spate of opinions being given about the impact of the Republican budget cuts on the economy. They range all over the lot.

This is a bit like physicists arguing over whether gravity causes things to fall to earth or float away. No one would treat physics seriously if its Nobel prize winners could contradict each other with such ease in public.

It goes up.

No! It goes down.

No! It is a gravity failure and we must eliminate such failures. Then it will go up.

No! In the real world it always goes down.

And so on.

Yet this is the state of play in economics.

Mark Zandi tells us that the GOP plan will cost around 700,000 jobs over two years. The Fed according to Bernanke, who ought to know, says it’s more like 300,000.

Then there’s the staunch orthodox.

Oh, those orthodox.

They don’t even care about unemployment since it is all voluntary. It is a small inconvenience. It is the result of individual utility or something. Maybe the disutility of work. Who knows? But it doesn’t matter.

To the orthodox, and my example today is the redoubtable John Taylor, the GOP plan is a jolly good thing. Why? Because it clears away the uncertainty over the debt. You see the government is an enormous and pernicious thing in the neo-libertarian world of orthodoxy. It can do no good. One really bad thing it does is to muck around with the business outlook. As we all know businesses are perfectly rational, they know absolutely everything, and they are just stalwart in being able to execute plans with exact precision. Except when the naughty government gets in the way. As when it runs up enormous deficits. These deficits create debts that need to be repaid. And that repayment implies tinkering around with tax rates. With us so far?

Now. When business cannot plan exactly, don’t forget that precision, they apparently seize up and quiver in fear. They don’t build new factories. They don’t hire workers. They don’t do much at all except complain. And that wailing breaks John Taylor’s heart. So much so, that his entire policy to get the economy back on track is to advocate steady debt reduction, budget cuts, and anything else the Republicans may want to do.

What a coincidence that orthodox economics and right wing politics match so well together. Deirdre McCloskey, dear thing, please note I am not hewing to left wing pathology when I note how closely bourgeois dignity resembles Republican policy.

You see, getting the debt on a steady and predictable downward course, stops the whining from business. To paraphrase the song: they can see clearly now. With government whimsy out of the way, the immense and always efficient machinery of the market can chug back to life and generate wealth, raise incomes, and generally make the world go round.

Those silly Keynsians don’t seem to understand that it is uncertainty that plays such a key role in the economy. Oh! Wait!

Hang on. I thought that one of the great insights of Keynes was the role of uncertainty. And that orthodoxy presumes consumers and firms had access to perfect information. Which should surely mean they can figure out the government. Doh!

This can get confusing.

Orthodox economists have built their theories around certainty. They see the world in Platonic terms as a constant disappointment. It never quite matches their idealistic vision. So their advice is always to get rid of things that muddy the real world and stop it resembling their dreamscapes. So to Taylor, it is quite obvious that the government is a source of confusion. It seems to change its mind. When the economy tanks government runs up debt. That sets in motion the need to pay down the debt, and we arrive at the conclusion that government is a bigger problem because no one knows when it will raise taxes. Those bureaucrats are subject to all sorts of human follies and foibles – unlike the denizens of the marketplace – and cannot be assumed to act rationally. They are prey to whimsy. They may even be – gasp – corrupt. And thus they produce uncertainty.

You get the picture.

In orthodox theory uncertainty is a vital problem when the government is the cause.

But, in their theory of markets, which we all know have godlike powers, uncertainty is never a problem because those godlike powers produce prodigious solutions. Don’t forget that markets are always efficient.

Which makes me wonder why they get so rattled by government whimsy. Surely after centuries of trying, anything with superpowers should have figured the government out by now.

Anyway.

There you have it.

Leading economists say that the Republican plan will either increase, or decrease, unemployment. That it will either raise, or lower, GDP growth. That is all the government’s fault. Or it’s not the government’s fault at all. That the sun will not rise tomorrow. Or it will rise exactly as before. This coherence is after millions of august papers have been written. Duly accepted as contributing to the advancement of our knowledge. And thence published so that professors can move their careers forward.

Oh. You caught me on a bad day. But tell me this: do we need to fix economics? Do we abandon it? Is it salvageable? Or do we just start over? When economists can justify absolutely any action, by absolutely any politician, is it worthy of respect at all? Or is it a joke?

I am being serious.

Here we are in a crisis. There are millions of unemployed people whose lives have been ruined. Whole careers are in tatters. Futures desperately impaired. Dreams smashed. Wealth lost. Homes foreclosed. And retirements postponed.

And economics, the subject that holds itself as able to remedy these ailments, is riven through with division, strife, arrogant personal tiffs, and outright contradictions. It is a shameful mess. For all its faux precision it appears to be no better than sticking your thumb in the wind to see if a storm is coming.

Yet it rambles along unperturbed.

Economists seem shell shocked by their subject’s irrelevance. Or at least the uselessness of its mainstream. The experiment we have run since 1980, and the subsequent crisis, has trashed any semblance of authority orthodox theory has. Efficient markets just don’t get confused by details like government policy. At least not if they can compute absolutely everything else. Super powers are not selective. They are universal. Else they are not that super.

I wonder how many economists have stopped writing, researching, or teaching what they used to, and begun to think instead. Maybe if they all simply ceased to do what they did before, and started to debate what went wrong they could rescue something from the wreckage before they are seen simply as people who sell whatever their own ideology tells them to.

Or is it too late?

I hope not.

Economics is a beautiful subject. It should help, not confuse, society. At least that’s what I think it should be able to do.

Of course that implies you believe society exists, and that the world is not just a horde of miscellaneous individuals trying to get a jump on each other.

Oh well, there we go again.

For the record: in my confused and humbled state, I think the Republican plan will cost us both jobs and growth. Between the Fed’s and Zandi’s numbers. As for Taylor: he teaches at Stanford so he is evidently brilliant. And wrong headed. He honestly believes in market magic, and those super powers. Good for him. I still don’t understand how the government can befuddle the market and dull the magic. But then I didn’t go to Stanford. They all know something I don’t.

Or maybe I just live somewhere else. Somewhere Taylor doesn’t.

Like the real world.