Take two examples. On whether government borrowing aggravates recessions or promotes recoveries, the world’s most eminent economists fall into one of two violently conflicting schools. The world’s most important central banks, the U.S. Federal Reserve and the European Central Bank, hold diametrically opposing views about the effects of quantitative easing. If economics were a genuinely scientific discipline, such disputes over fundamental issues would have been settled decades ago. They are equivalent to astronomers still arguing about whether the sun revolves around the earth or earth around the sun.
How should politicians and voters who look to economists for guidance respond to this cacophony? Writing this week from Hong Kong, which is hosting a galaxy of economic superstars at the annual conference of the Institute for New Economic Thinking (INET), I can offer a partial answer.
INET is a $150 million foundation created four years ago to support academic research and teaching in economics that break with the assumptions of natural equilibrium, market efficiency and statistical predictability that were largely responsible for the policy mistakes that produced the 2008 financial crisis. Economics is ultimately a study of politics, psychology and social behavior. It is therefore as close to philosophy or even theology, as to physics, biology or engineering. Just as philosophers and theologians still argue about the same issues that preoccupied Plato, Kant and Descartes, economists see no shame in continuing the debates over budget deficits, monetary policy and full employment launched by Keynes, Wicksell or Walras.
This political and moral aspect of economics suggests a reason for the subject’s remarkable prestige and power, despite its obvious failings. Economists have become a secular priesthood, turning the political orthodoxies of their times into comprehensible narratives, thereby promoting social stability and democratic consensus.
This is an interesting article from Anatole Kaletsky – “Trying to fix broken economics”. And one of my favourite Keynes quotes is also in the piece.
As Keynes famously said, “The ideas of economists, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”