Alan S. Blinder wrote “What’s the Matter with Eoonomics?” Blinder concludes that except for some right-wingers outside the \u201cmainstream\u201d and politicians\u2019 refusal to accept economists\u2019 recommendations, little is the matter.\u00a0 However, economists\u2019 thinking, based on an ill-conceived view of human behavior and addressed to the wrong problem, is a powerful force in policy circles.<\/p>\n
Blinder\u2019s textbook, written with William Baumol, is the standard for the mainstream. Both are extraordinarily good economists, liberal and not doctrinaire.<\/p>\n
Economists, however, have been unable to forecast accurately based on the exposition put forth iby Blinder.\u00a0 For example, the Federal Reserve Board\u2019s belief in (mostly) efficient markets led to it missing the signs of the Great Recession; as late as June 2006 the Fed raised interest rates fearing that \u201csome inflation risks remain.\u201d For years, the Fed had rejected board member Ned Gramlich\u2019s warnings that the practices of subprime lenders were not consistent with the assumptions of the Fed\u2019s economists.\u00a0 Mainstream economists did not predict the effects of eliminating Glass-Steagall, thereby allowing large banks to design and sell the products that helped bring about the collapse.<\/p>\n
Although recognizing that markets can be flawed, Blinder states that minimum waste \u201ccan be achieved extraordinarily well by letting markets operate more or less freely\u201d and that market methods can remedy the few flaws in the market. The role of economists is removing barriers to the markets\u2019 efficient allocation of usually scarce resources (they assume full employment). For the perhaps 200 million unemployed worldwide the more important issue, however, is the chronic underemployment of potential resources. Economists do not build the distribution of income into their models; but 80 percent of the world population lives on less than $10 a day, which surely wastes substantial human resources. A reexamination of the efficiency of markets, especially financial markets, is in order.<\/p>\n
More is wrong with economics than a few right wingers. Mainstream economists claimed until the eve of the 2008 catastrophe that they had at last learned how to manage the economy well. This was quite an error of analysis and thinking, and did not principally come from the right. The leaders of this mainstream analysis were centrist Ben Bernanke, the former Federal Reserve chairman, and moderate liberal Olivier Blanchard, chief economist of the International Monetary Fund.<\/p>\n
They argued that the stability of the GDP since the 1980s was an indication that the problem of macroeconomic adjustment had been solved. Stability is fine, but over this period debt soared, growth slowed on average, wages stagnated or fell, inequality rose, and there were at least seven American financial crises. Then came disaster in 2008. What were they talking about?<\/p>\n
Did\u00a0 policymakers listen to these ideas? They still do at the Federal Reserve, where foolish bickering over whether inflation will reach 2 percent a year still goes on. Stale, discarded ideas? Hardly.<\/p>\n
Say\u2019s Law, an argument for austerity economics and a self-adjusting economy, was defeated by the Depression. Blinder cites a survey showing that most economists agreed that the Obama stimulus was effective. Sure, after the sharpest drop in GDP since the Great Depression. As some facetiously put it, we are all Keynesians in a foxhole.<\/p>\n
\u201cThe ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood,\u201d wrote John Maynard Keynes in 1936. \u201cIt is ideas, not vested interests, which are dangerous for good or evil.\u201d<\/p>\n
Does economics explains growth better than other disciplines? Iit reflects the typically narrow focus of a top mainstream economist. Sociology and political history are critical to understanding Chinese economic development, for example. The recently famous Hyman Minsky, who is now cited constantly for his work on speculative bubbles, was more sociologist and psychologist than technical economist.<\/p>\n
Even today, seventy-eight years after Keynes taught the world how to end recessions, many politicians in many countries refuse to follow his (now very mainstream) advice. That\u2019s not a good show for\u201ca powerful force in policy circles.\u201d<\/p>\n
<\/p>\n","protected":false},"excerpt":{"rendered":" Alan S. Blinder wrote “What’s the Matter with Eoonomics?” Blinder concludes that except for some right-wingers outside the \u201cmainstream\u201d and politicians\u2019 refusal to accept economists\u2019 recommendations, little is the matter.\u00a0 However, economists\u2019 thinking, based on an ill-conceived view of human … Continue reading ![\"John](\"http:\/\/www.w-t-w.org\/en\/wp-content\/uploads\/2014\/12\/John-Maynard-Keynes.jpg\")
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