This will be an intertwined, five part series, born out of a rabbit hole I fell into, and spent an evening over.
- “As we try to understand the world of the next three decades, we will desperately need economics but also political science, sociology, psychology, and perhaps even literature and philosophy. Students of each should retain some element of humility. As Immanuel Kant said, “Out of the crooked timber of humanity, no straight thing was ever made.””
Fareed Zakaria isn’t too impressed with the state of economics today, and says that a more holistic approach is needed. Holistic is a fancy-schmancy word that is far too over-used – but essentially, his point is we need to read wider (ahem), and be rather more aware of the fact that math is way overrated.
- “Managing globalization, supporting a healthy middle class in an era of artificial intelligence, and incentivizing the preservation of the planet must be among the central challenges, if not the central challenges, of our era. If not from economic analysis, it is hard to see where resolutions will come from. Everyone, whether they like economics and economists, or whether they resent and distrust current economics, has a stake in the discipline being relevant and successful going forward.”
Yes, but what about the opportunity cost of abandoning economic theory? That in effect, is what Larry Summers says in this essay, penned in response to the original. Sure, economics has its flaws, and sure, it has had to evolve over time, but surely that is a good thing?
- “The problem, however, is that there is also the unprofessional How Tax Reform Will Lift the Economy: We believe the Republican bills could boost GDP 3% to 4% long term by reducing the cost of capital. It seems that every Yellen is offset by Holtz-Eakin, every Rajan by a Taylor, every Shiller by a Barro, every Krugman by a Boskin, and so on. And how is a Fareed Zakaria or a Binyamin Appelbaum supposed to disinguish those who have knowledge from those who have only ideology, or indeed from those who can and do switch their approval and disapproval of policies on and off upon changing demands from changing political masters?”
Well, yeah, maybe, says Brad DeLong, in response to the question posed by Larry Summers above, but Fareed may have a point, still. Economists are nowhere near as consistent as they ought to be, and that ought to count against us.
- “Rather than suggesting coherent policies, Moore and Laffer seem to hope that a much more rapidly growing economy will provide the resources to address all these problems, and they seem to believe that this growth will follow ineluctably from the lower taxes and deregulation that lie at the heart of Trump’s agenda. It would be wonderful if that were possible. Maybe rah-rah partisans really believe it is. But more likely, it is just wishful thinking. ”
N. Gregory Mankiw highlights some of the problems that Brad DeLong gets so upset about in a wonderfully provocative article.
- “On the other hand, economists do turn out to know quite a lot: they do have some extremely useful models, usually pretty simple ones, that have stood up well in the face of evidence and events.”
Paul Krugman, who writes as well as anybody else, ever, in the field of economics – if not better – makes the point that simple economic models are surprisingly easy to understand and teach, and they work.