Thursday, January 29, 2009

On Macroeconomic Disagreements

Why do economists differ so greatly as to solutions to the current economic crisis?  Why haven't they explored situations like these and arrived at a consensus?  There are several possibilities.  

Ignorance.  They do not know what they do not know, and they do not want to know it.  

Arrogance.  They already presume to know so no investigation or proof is necessary.  They have accepted their position as an article of faith, therefore nothing can contradict it.  Anything that does is in error.  Ideology is more important than reality.  

Antipathy.  The result may be contrary to their personal consideration and it is better to deny than admit it.  They seek power rather than truth.  


More deeply, I think the situation that would call for fiscal stimulus has been consciously avoided because the implications and solutions are highly unpleasant to economists. Instead the belief that monetary policy would always be sufficient and superior held sway. Economists want to believe markets are always and everywhere superior to government, that they are always more efficient, that their distribution is optimal, and that the worst market failures are less than the least government imperfection. There have been circumstances where they have had to confront externalities and failures, but have done so only at the greatest reluctance. Something as deeply problematic as catastrophic economic failure is confronted with shock, denial, and all of grief.

At least that is the charitable view. Others see in this the denial and propaganda of the true believer or the greedy self-interest of the powerful to preserve and protect their ideology or interests at the expense of the others and the public. I do not doubt many know what they are paid to offer and that they were selected for that. They know what their customers want to hear and they want to give it them. It is far from uncommon to seek narrow short-term advantage at the expense of broad long-term gain.  That is, after all, what got us to where we are now, but that is not a comfortable place.  Deluded or deluding?  Obsequious or opportunistic?

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