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The economic idiot savants of our time

February 1, 2017

I don’t often find myself in almost total agreement with Robert Skidelsky but this is one of those times. This is from an article titled, Economists versus the Economy.

What unites the great economists, and many other good ones, is a broad education and outlook. This gives them access to many different ways of understanding the economy. The giants of earlier generations knew a lot of things besides economics. Keynes graduated in mathematics, but was steeped in the classics (and studied economics for less than a year before starting to teach it). Schumpeter got his PhD in law; Hayek’s were in law and political science, and he also studied philosophy, psychology, and brain anatomy.

Today’s professional economists, by contrast, have studied almost nothing but economics. They don’t even read the classics of their own discipline. Economic history comes, if at all, from data sets. Philosophy, which could teach them about the limits of the economic method, is a closed book. Mathematics, demanding and seductive, has monopolized their mental horizons. The economists are the idiots savants of our time.

Let me also give you his opening para:

Policymakers don’t know what to do. They press the usual (and unusual) levers and nothing happens. Quantitative easing was supposed to bring inflation “back to target.” It didn’t. Fiscal contraction was supposed to restore confidence. It didn’t. Earlier this month, Mark Carney, Governor of the Bank of England, delivered a speech called “The Specter of Monetarism.” Of course, monetarism was supposed to save us from the specter of Keynesianism!

With virtually no usable macroeconomic tools, the default position is “structural reform.” But no one agrees on what it entails. Meanwhile, crackpot leaders are stirring discontented voters. Economies, it seems, have escaped from the grasp of those supposed to manage them, with politics in hot pursuit.

The above article was sent to me by a friend in Canada. This next quote is from a presentation of another colleague, this one given last week to the House of Commons in the UK. I’m afraid there’s no link, but you will get the drift. He is the only other self-identified “classical economist” I know of.

HOW DID PROFESSIONAL ECONOMISTS GET IT IN TO THEIR HEADS THAT THEY COULD PREDICT THE FUTURE?

Very simply, because that is what they have been taught in universities for the past fifty years. Of course Adam Smith would have laughed at the idea. Marx didn’t believe it either, nor did Keynes. But, starting around one hundred years ago, the university economics curriculum throughout the Western world was hi-jacked by a particular way of looking at economic activity that came to be known as ‘neoclassical’ economics . So successful was this takeover that by 1970 it had driven out every other method of analysis, like a cuckoo in a nest. Academic papers that did not adopt this particular method were rejected by the leading scholarly journals, thus ensuring uniformity of thought throughout the profession.

And while I am at it, I have been sent a third paper by another colleague which I hope he won’t mind my pre-empting his own publication since he is in the US and we are very unlikely to have overlapping readers. This is what he wrote:

Why hasn’t this recovery been stronger? The predominant explanation blames inadequate stimulus spending. It holds that more “demand” is needed to boost the economy. But this inverts the nature of the relationship between demand and economic performance. Demand is the result—not the cause—of economic activity. Therefore production, not demand, determines growth. At best, trying to stimulate demand while ignoring production is like trying to grow a flower by watering its petals instead of its roots.

But it’s often worse than that. The state can spend only what the private sector produces, which means government must first remove a dollar from the economy to spend it into the economy. Because doing so misallocate resources, the net effect is worse than zero: Rather than merely neglecting the flower’s roots, it’s like sucking water out of the soil and pouring it over the flower’s petals. Small wonder the economy has failed to break even three percent growth rates.

What to do seems economically clear enough, but how do we get the politics to line up? This is the question of our times, with every party of the left only wishing to do what would make things worse while preventing, as best they can, the parties of the right from fixing things up.

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