Did being bought and paid for cause economists to get it wrong?
How did economists get it so wrong?
“It,” of course, refers to the widespread failure of economists to sound an alarm about the upheaval that struck a year ago and continues to be felt today.
Writing in the New York Times Magazine, Paul Krugman recently posed that question and answered that “The economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.” You’ve probably read Krugman’s essay by now, but in case you spent last week on Mars or in Toronto, he argued that the culprit was economists’ romanticized, sanitized version of the market, which led them to turn
…a blind eye to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of markets — especially financial markets — that can cause the economy’s operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don’t believe in regulation.
Now, however, comes a different — and more conspiratorial — answer: Economists shy away from criticizing the Fed because they have, in effect, been bought and paid for:
The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession …
That’s the claim of an investigative piece in yesterday’s Huffington Post. I’m not sufficiently acquainted with the inner workings of the economics profession to reach any conclusions about the validity of this interpretation, but it’s an interesting read. Perhaps, too, this episode should spark a new round of thinking about political scientists’ links, financial or otherwise, to political institutions of various sorts?
Comments
“Perhaps, too, this episode should spark a new round of thinking about political scientists’ links, financial or otherwise, to political institutions of various sorts?”
Like a look at the revolving door of federal government officials and Harvard’s Kennedy School of Government?
Posted by: Shag from Brookline | September 10, 2009 10:59 AM
Larry White made the same claim about the impact of the Fed on economists a few years ago.
Andrew Samwick is puzzled that Krugman thinks the “freshwater” school had much to do with it. As Greg Mankiw has written in his “scientists vs engineers” paper, its only brackish economists that get invited to the big kids table where policy is made.
Posted by: TGGP | September 10, 2009 11:45 AM
Greg Mankiw at his blog provides a link to Barry Eichengreen’s “The Last Temptation of Risk” from the May/June 2009 issue of The National Interest that in my view is even tougher than Krugman’s article on economics/economists, without mentioning as many names. Note that Barry is described as a “Professor of Economics and Political Science” at UC, Berkeley. Perhaps that pairing gives Barry a bigger pair.
Posted by: Shag from Brookline | September 12, 2009 07:16 AM