Here’s a simple fact about credentials, economics, and economists. The majority of economists, the vast majority, did not see the crash of 07 and 08 until it was occurring.
Economics is not a science. It is not even close to a science. Economists often act as if it is, because it uses math, but the fact is that it is more like sociology than physics, except that most sociologists know that they aren’t practicing anything like physics, and most economists, while they might say they aren’t, act as if they know what they’re talking about when they clearly don’t.
Now some are better than others. Krugman, who I criticized in a past post, is a genius and a good economist. But he isn’t a good economist because he’s got a Ph.D or a Nobel prize, and the idea that those things make him good are incredibly naive. It’s also possible to be a good economist, and worthless at giving practical policy advice. Here’s another Nobel prize winner for you: Milton Friedman. Also a genius, by the way. Lousy policy prescriptions, but a genius.
Economics is not a craft. Put in ingredients X and Y, get Z. If you think it is, you will go wrong every time.
Krugman is very bad when it comes to dealing with people who are part of his club. He was great when Bush was in power until Bernanke took over the Fed, then because of his ties to Bernanke (Bernanke hired him for his current position) he started getting things wrong and cutting Bernanke way too much slack.
He is also very doctrinaire. James Galbraith, in 2002, characterized Krugman as follows:
Krugman is concerned, first and foremost, with his own standing among the club’s leaders. And he has come to function as a kind of guard dog for their dogma, savagely attacking dim-witted outsiders while remaining generally quiet, if not always completely silent, about acts of illogic committed inside the profession.
Krugman has started a new career as a regular on the op-ed page of The New York Times, and his priorities were on display in his opening column. Consider how it opens:
Beginnings are always difficult: even the most tough-minded writer finds it hard to avoid portentousness. And since this is a quadruple beginning (new year, new century, new millennium, and, for me, new column), I won’t even try. What follows are some broad opening-night thoughts about the world economy.
I deliberately say world economy, not American economy. Whatever else they may have been, the 90’s [sic] were the decade of globalization… .
And so it goes, one banality after another, grimly through to the end, where Krugman writes that “the facts may be on the side of the free traders … [but] the opponents are winning the propaganda war.” It is a typical Krugman flourish, broad and misleading, in which the economists are pitted against a ruffian fringe. There is not a word to suggest Krugman himself is aware (though he certainly is, having himself come down on the right side) that the key issue among economists is not trade but capital flows.
In a column just a few days later, he is even more explicit: “New challenges to orthodoxy, like the growing backlash against globalization, are already brewing. Such challenges may be ill-informed, but no matter.” Always the defense of orthodoxy comes first. Nowhere does Krugman acknowledge the plain fact that the system of free global finance has been in deep crisis for over two years.
Granted, Krugman has become rather better since then, but the point remains.
When you’re dealing with experts you need to understand what they’re good for, and good at, and what they aren’t. Krugman is a good economist and morally brave when dealing with people he doesn’t like or who egregiously violate the norms of the economics profession as Krugman understands them. Step outside orthodox economics too far and Krugman will swat you.
But, unfortunately, orthodox economics is, well, wrong about a lot of things. And when economics is wrong, or when Krugman’s friends are involved in affairs, Krugman tends to be wrong, or to cut his friends too much slack. He also lacks technical knowledge in some fields, and sometimes doesn’t bother to get it (as, for example, in 2008, when he simply did not understand the mechanics of how oil prices are influenced by futures.)
I’ll always admire Krugman for his performance during the Bush regime. I’ve read his books and learned a great deal from them, and he deserved his Nobel prize. But he’s not been right about everything, and understanding when he gets things right and when he gets things wrong is important for anyone who respects him, and reads him, to understand.
More to the point, understanding when experts are right and wrong, and why, is a general skill everyone needs to have. You can’t understand everything, you can’t personally be an expert on everything, so you need to learn who to trust, and when not to trust them.
This applies as much to me (don’t take my American electoral predictions seriously, I suck at them) as it does to anyone else.
No one’s right all the time. Learn when the odds are that your favorite experts are right, and when odds are they’re wrong.
(Oh, go read Galbraith’s entire article. It will reward your time. For example:
But self-absorption and consistent policy error are just two of the endemic problems of the leading American economists, and not even the most serious among them. The deeper problem is the nearly complete collapse of the prevailing economic theory–of the structure of thought that supports their policy ideas. It is a collapse so complete, so pervasive, that the profession can only deny it by refusing to discuss theoretical questions in the first place.
The prevailing theory is the idea that price and quantity are set in free competitive markets through the interaction of supply and demand. It is this idea, and no other, that lies at the core of the economist’s way of thinking. And it is also the source of the profession’s problem in getting almost anything important right.
The notion of supply and demand as the organizing principle for everything is a few decades more than a century old. (It was not so for Smith, Ricardo, Malthus, Marx, or Mill.) The key player in the Anglo-Saxon tradition is Alfred Marshall; in the continental tradition, no doubt, Leon Walras. In the twentieth century, great economists including Keynes, Joseph Schumpeter, and John Kenneth Galbraith have tried to break the grip of this notion on the professional imagination. But they have not succeeded.
Supply and demand in the labor market underlies the notion that full employment cannot be reconciled with stable prices, that technological change drives pay inequality, and that raising minimum wages must drive up unemployment. In all these cases, the fundamental theoretical error is essentially the same: It consists in reifying a supply curve, for which no firm empirical foundation exists. Put another way, it consists in allowing a metaphor, one that originates in markets for fish, to govern a profoundly different human institution.
Of course, the collapse of supply and demand perhaps is best illustrated by the global capital markets, which were supposed to bring stable prosperity to the developing countries but instead brought them financial ruin. And nowhere is this more evident, or more catastrophic, than in the case of Russia, where the failure to build new institutions to replace the failing structures of the Soviet system, and the reliance instead on the “market” to provide, has given us a production, employment, and public health disaster, leading toward the reestablishment of a state directed by the secret police and the army. None of this was openly admitted, one can be sure, by the AEA’s leaders.)
