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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

the econocrats: here we go again « Previous | |Next »
June 29, 2010

Karthik Athreya, a specialist in macroeconomics and consumer finance who works in the Federal Reserve Bank of Richmond, argues that Economics is Hard. Don’t Let Bloggers Tell You Otherwise. He says that:

The following is a letter to open-minded consumers of the economics blogosphere. In the wake of the recent financial crisis, bloggers seem unable to resist commentating routinely about economic events. It may always have been thus, but in recent times, the manifold dimensions of the financial crisis and associated recession have given a fillip to something bigger than a cottage industry. Examples include Matt Yglesias, John Stossel, Robert Samuelson, and Robert Reich. In what what follows I will argue that it is exceedingly unlikely that these authors have anything interesting to say about economic policy.

These authors, Athreya says, belong to the 'Macroeconomic policy is Easy: Only Idiots Don't Think So' movement, which also includes Paul Krugman and Brad Delong.

The argument is that econocrats as experts (PhD economists who publish research papers in referred journals) rule, and that the general public are simply being had by the bulk of the economic blogging crowd.

I'm sure that Athreya's argument is a commonly held amongst both the scientific economists in the academy and the econocrats in Treasury and the Reserve Bank in Australia; that only professional research economists should be allowed to discuss economics because, well, economics is really hard, and nobody else has a chance of understanding it or appreciating all the complexity of the discipline. Athreya puts it this way:

When a professional research economist thinks or talks about social insurance, unemployment, taxes, budget deficits, or sovereign debt, among other things, they almost always have a very precisely articulated model that has been vetted repeatedly for internal coherence.

Everybody else, not so much. And that 's the problem--what we get is the sophomoric musings of auto-didact or non-didact bloggers whose musings are just the speculations of untrained poseurs. In other words, economics bloggers are basically quacks, hardly worth paying attention to.

The assumption is that what economic policymakers do is economics (as a science) and he implies that political pundits trying to second-guess their decisions would be on a par with me trying to second-guess someone doing theoretical physics. But economic science is not what economic bloggers are doing or commenting upon.

I comment on economic events without any pretence of doing macreconomic theory (or science) and I do so because political discourse is structured around the economy, economic growth, jobs, inflation and employment. What this political discourse indicates is that economic is not about economics per se; it is about political economy in that it is economics plus politics. So we have public debates about what is the proper role of fiscal and monetary policy during a recession? What role should regulation play in govern the economy? How should the state govern the economy?

These kind of debates structure the way that we approach national economic policy. Bloggers are competent to comment on important public policy issues in the public sphere and they do so by examining the arguments. The economic bloggers mentioned above tend to offer better than average commentary than many journalists in the mainstream press.

One reason the economic bloggers have entered the public sphere is because, with few exceptions, Australian economists have not seriously addressed the issue climate change, which is the best policy to reduce greenhouse emissions (an ETS or a carbon tax) or the economic implications of the shift to a low carbon economy. Why their silence? Why the lack of a broad consensus on the merits proceeding with an emissions trading scheme.

What is not recognized by Athreya is the crisis in neo-classical economics---pre-Keynesian theory after Keynes----which at its core holds that the consumer queen attempting to maximise her expected life time utility is the core actor and decision-maker, with all other actors and institutions subject to her whims and desires, especially within a competitive environment. This neither makes sense of what has happened with respect the global financial crisis and its aftermath, or of what should and could be done about it.

| Posted by Gary Sauer-Thompson at 9:43 AM | | Comments (3)


The following 'economic doctrines' have been 'refuted'.

My source is a 'blogger'.

1.The markets are efficient.
2.Privatisation is always good.
3."Trickle down' is good.
4 The Central Bank is independent.
5. Some sort of doctrine to do with Individual Retirement Accounts.
6. Ditto 'the Great Moderation'.

The last 2 are a bit vague cos I only wrote down the headlines this blogger person used, discussion within each post was more detailed.

Now who is this 'blogger'?

Bloke called John Quiggin.
Professor of Economics at UQ.

Here is his CV.

Gary, I know you know JQ, I'm just putting this in to counter Athreya's apparent assertion that bloggers are ignorant.

I wonder if Karthik has a view on climate change, or is content to leave it to the physical scientists to tell us what to do on the basis of their 'precisely articulated' models.

I suspect that most neo-classical economists see human-induced climate change as an environmental issue, frame it as economics v environment and understand the issue in terms of it being anti-growth + big state intervention.

On the issue of the natural science of climate change, notwithstanding the neo-classical economist's belief that economics is a science, I suspect that they would be somewhat sceptical of what the science of climate change is saying in terms of its evidence. Of course bloggers, being somewhat sceptical of economics indicates their profound ignorance.