Fascinating title from an article in the Financial Times: Why economists keep being wrong on policy. It comes with a bit of interesting content in its description of the nature of economic theory and policy:
The abiding sin threaded through it all was that of certitude. Perfectly plausible but untested theories, whether about the money supply, fiscal balances and debt levels, or market risk, were elevated to the level of irrefutable facts. Economics, essentially a faith-based discipline, represented itself as a hard science. The real world was reduced by the 1990s to a set of complex mathematical equations that no one, least of all democratically elected politicians, dared challenge.
Thus detached from reality, economic policy swept away the postwar balance between the interests of society and markets. Arid econometrics replaced a measured understanding of political economy. It scarcely mattered that the gains of globalisation were scooped up by the super-rich, that markets became casinos and that fiscal fundamentalism was widening social divisions. Nothing counted above the equations.
And what is the conclusion?
And now? After Donald Trump, Brexit and Covid-19, it seems we are back at the beginning. Time to dust off Keynes’s general theory.
It does make me laugh. Donald Trump created the greatest economic upturn in American history but that remains completely invisible to these clowns. It would never occur to them to examine just what happened and why it might have worked. But the notion that Keynes and his General Theory have been absent from policy and need to be brought back may be the most stupid comment I have seen on economic theory and policy in a very long time.