Monday, July 11, 2011

The economics profession isn't what it used to be

When I first encountered the economics profession in the late 1960s, it was a bunch of people who were amazingly self-satisfied.  And with cause.  They had developed a philosophy and a set of principles that had pulled the country out of the Great Depression, had fought a World War with only minor economic disruptions, and had put the country on a path of prosperity that has not been matched before or since.  A few years back, an NBC news reader by the name of Tom Brokaw wrote a sentimental account of the people who had survived and thrived during those days called The Greatest Generation.  So I wrote an account of the economists of the time called, The Greatest Generation--Economics Division.  It has been a steady hit on my website ever since.

Things have changed dramatically since then.  The economics profession is no longer filled with widely educated smart people who have figured out new and better ways to bring prosperity.  Now we have narrowly educated math nerds who use their skills in fast algebra to justify crushing the hopes of billions around the world.  No wonder their meetings must now be protected by armies of robocops.

Doing Nothing Once Again
Do Economists Bleed?
By DEAN BAKER   July 6, 2011
Two prominent medical researchers reviewed hundreds of thousands of records on infant and childhood mortality dating back over the last eight centuries. They discovered that over the vast majority of this 800-year period, only around half of newborns survived to adulthood. They concluded that we should not expect our children to live to adulthood.
Anyone reading this paragraph should be fuming at the absurdity of this sort of extrapolation. Almost everywhere in the world in the 13th-19th centuries people lacked the health care advances that we take for granted. They lacked modern sanitation advances, like sewage disposal and clean drinking water, their diets were often grossly inadequate, and they didn't have the benefits of modern medicine, like antibiotics. The enormous differences in these and other areas make it absurd to extrapolate about health outcomes from prior centuries to the present situation.
While the absurdity of such extrapolations on health outcomes should be immediately apparent, for some reason those in policy circles think it is perfectly reasonable to make the same sort of extrapolations when it comes to economic outcomes. Two prominent economists, Ken Rogoff and Carmen Reinhart, did an extensive examination of financial crises over the last eight centuries. They found that the after-effects of these crises tend to be long-lasting, with economies often taking a decade or more to get back to normal levels of output.
This is an interesting and worthwhile historical exercise. But why would anyone think that this past history any more condemns economies to suffer prolonged downturns from the recent financial crisis than the past history will condemn our children to an early death? Just as we have made enormous advances in public health and medicine, we have reason to believe that we have made enormous advances in economics as well.
The most obvious advance was the writings of Keynes in the 30s, who explained how an economy could endure a prolonged downturn like the Great Depression. He also explained how the government could provide the boost necessary to get an economy back to normal levels of employment and output. There of course has been much work subsequent to Keynes that builds on his basic insights. In principle, this work implies that there is no reason that economies should ever again be forced to endure long periods of high unemployment, just as there is no reason for us to expect 16th century mortality rates for our children.
However, many in the media and policy circles insist in telling us that we are doomed – we just have to accept that it may be close to a decade before we get back to normal levels of unemployment. In the meantime, tens of millions of people around the world will be condemned to unemployment or underemployment, because the folks responsible for managing the economy messed up.
It's worth asking what this view tells us about the economy and economists. As far as the former, this view of the economy takes on an almost mystical aura. The sins that led to the financial crisis leave us with no recourse; "we" simply must accept that there is nothing that we can do. (The people saying this are never among the unemployed.) more
When you have a profession on a prolonged losing streak, some will natually assume that there is something profoundly wrong with what is being taught in the schools. (my opinion)  However, there are many who think the whole profession has become hopelessly corrupt.  They have been trying to do something about it.  The longer they fail to get economists to approve an ethics code, the more people like me believe they have a point.
Economists display little interest in ethics code
By Kristina Cooke and Emily Flitter   Fri, Jul 8 2011
(Reuters) - The world's largest association of economists is considering ethics guidelines after outrage about undisclosed conflicts of interest, but only a handful of its 18,000 members have bothered to offer any input.
The American Economic Association earlier this year charged a five-person panel with looking into ethics and economics -- in part a response to the 2010 documentary "Inside Job" that vilified a number of big-name economists for arguing in favor of deregulation while on Wall Street's payroll.
The film also notably skewered former Federal Reserve Governor Frederic Mishkin, who wrote a glowing paper about Iceland's financial system in 2006 -- for which he was paid by the Icelandic Chamber of Commerce. Two years later, the country's financial system collapsed.
The panel, chaired by Nobel prize-winning economist Robert Solow, asked for input from the broader membership, with an end of June deadline, but so far, Solow said, he has received at most a dozen responses.
That's not a surprise to David Card, an economics professor at the University of California in Berkeley and member of the AEA's ad-hoc ethics committee.
"There are a few people who feel very strongly about this, but it's not a big deal to most economists," said Card. more

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