Crawl Across the Ocean

Friday, January 09, 2009

The Trouble With Economists

So many disagreements and misunderstandings seem to arise from people using different definitions for the same word.

Take 'economists' for example. A little while back Stephen Gordon, himself an economist as far as I know, wrote a post entitled "Economists' fatal flaw: Diffidence". It's a short post which argues that economists didn't point out the housing bubble because it didn't fit their models and when the data doesn't fir their models, economists just stay quiet. He concludes by asking, "I wonder to what extent the world would be a better place if economists were as arrogant as non-economists claim they are."

Meanwhile, the other day saw a big headline in the Globe and Mail, "Economists' advice to Flaherty: cut taxes now"

The article starts,
"Canada's top private-sector economists have a message for Jim Flaherty as the federal Finance Minister prepares his critical recession-fighting budget: Cut taxes now, rein in spending later."

and later on...

"Mr. Drummond and others added that tax cuts now would have to be balanced in 2010 and beyond by a tightening of program spending, which throughout this decade has consistently grown faster than inflation and the economy.

"We do have to see these permanent tax cuts - that's really the only thing that will influence behaviour in the economy," agreed Craig Wright, chief economist at Royal Bank of Canada. "But in the out years, when we hope and think the economy will be in a recovery mode, then you can rein in program spending, because that's something that has been running quite rapidly."

The claims about rising federal spending that are made by these economists are easily refuted (for anyone who doesn't do business reporting for the Globe and Mail, at any rate) nonsense, as Erin Weir points out over at Relentlessly Progressive Economics.

But how to square this article with Gordon's theory of the diffident economist? How to square the group of economists in the front pages of the paper offering a series of right wing prescriptions supported by neither fact nor theory with the economist unwilling to point out a housing bubble because it doesn't fit his models?

You can't reconcile these two groups, because these are not the same economists. On the one hand, we have what we might call 'newspaper economists' who seem to function primarily as big business shills and see tax cuts, interest rate cuts and spending cuts as the solution to every problem whether it be boom or bust, surplus or deficit. On the other hand, we have 'academic economists' who take on the thankless and to date mostly unsuccessful (in macroeconomics, anyway) task of trying to understand economics well enough to build a theory of economics that will actually prove useful, occasionally blogging but generally leaving the public stage to the corporate, newspaper economists (although certainly the biases of the media towards simplistic partisan answers doesn't help with the relative coverage the two groups get).

There are a few exceptions to this paradigm, in particular Paul Krugman, but they're more of the exception that proves the rule than the norm.

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  • That distinction is important - I certainly wasn't referring to bank or the other private-sector economists who dominate what passes for economics coverage when I used the word 'diffident'.

    This is another example of bad media coverage of an important issue. Private sector economists are quick to bombard journalists with pre-scripted press releases, and it's just too easy to do cut-and-paste and pass it on with little or no critical comment.

    By Blogger Stephen Gordon, at 5:55 AM  

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