Mike Shedlock has an amusing post in which he describes the debate about the correct policy going on among economists as a duel between wizards:
- Keynesian wizards believe governments can spend their way to economic health and although fiscal deficits may matter at some point in time, they never matter now, in practice.
- Monetarist wizards believe money will cure any and every problem if enough is dropped from helicopters and interest rates held low.
- Austrian wizards believe that economic problems are created by unsound money, haphazard loans, excessive debts, and government manipulations.
- Keynesian and Monetarist wizards believe in the voodoo principle “the problem is the solution if only you do more of it”. The former relies primarily on fiscal voodoo, the latter relies primarily on monetary voodoo.
- Austrian wizards do not believe “the problem is the solution”, no matter how many times it is repeated.
Since I’m pretty sure the subject will come up, there’s another school of wizardry, not mentioned by Mish. As best as I can tell the new school believes that the problems of the economy can be cured if you issue enough credit. Over time that will have its own bad consequences.
I’m not an economist and I don’t belong to any school. I think that different tools work under differing circumstances and that pretty much anything can work, at least in the short term, depending on circumstances and that you need to choose the right tool for the conditions in which you find yourself. I also think that discretion is almost always bad while rules are generally better. When the incentives are high enough any policy strategy can and will be gamed.
I can’t tell you how many times over the last several years I’ve thought of a scene in from the early days of the M*A*S*H television, during the Henry Blake/Trapper John period. Radar comes in and hands a document on a clipboard to Col. Blake saying “Sign here, sir”. Col. Blake says “Radar, there’s nothing on this paper” to which Radar responds “Oh, I’ll fill in the rest later”.
I miss M*A*S*H. It was such a great show! And, yes, I distinctly remember Radar saying that line to Col. Blake, too. It kind of reminds me of Nancy Pelosi urging people to pass HC, saying everyone would find out what was in it later.
Look at those two bullet points. Note that the first believes in magic. The second does not and is something most people would find rather reasonable….yet…yet it is the economists in the second group that are considered the most unreasonable.
Thank you, Steve V.
The Austrian wizards believe that you let the dragon burn down the town. You can always rebuild it later and, besides, the rich guys in the stone castles will be ok anyway. Besides, our problem is lack of jobs, so if Mish just wants to make stuff up (as if that would be surprising) he can make anything sound good.
Steve
This post reminded me that the great British anthropologist E. E. Evans-Pritchard is most famous for this work, Witchcraft, Oracles and Magic among the Azande. His son now writes on economists and economics.
Jesus steve that was really dumb.
I was trying to match Mish for stupidity. Effect achieved.
Steve
What is the problem, many Keynesians are running around saying, “More deficit spending, interest rates are low, take advantage of the cheap borrowing!” Monetarists are saying, “More money!” And Austrians really are saying things like in the quote.
How is that stupid?
Now coming in and blathering on about dragons and castles….
Overall, the post is kind of stupid. His complaint against Mankiw is misleading, IMO. Following the relevant links to the end in that case takes you to a post where Mankiw is advocating an inflationary policy…which worked back during the Great Depression. But the part that Dave has highlighted isn’t all that unreasonable.
There were plenty of other ways to point out some of the foolishness in the article other than making such a snide and dismissive post about the Austrian view. I don’t share the gold standard views many Austrians have, but the rest of that list is stuff people like Dave have pointed out as being problematic in the past.
” I think that different tools work under differing circumstances and that pretty much anything can work, at least in the short term, depending on circumstances and that you need to choose the right tool for the conditions in which you find yourself. I also think that discretion is almost always bad while rules are generally better. When the incentives are high enough any policy strategy can and will be gamed.”
True, and after 80 years of comprehensive economic data we can’t get agreement on what each tool does or how effective it is. The field has been revealed as largely useless in its predictive capacity and without that what good can economics be?
Oh really? So, all the various results on things like incentives and and supply and demand have yielded nothing at all useful in way of predictions? If you want to make that claim against macro you might have legs to stand on, but to make it against the entire field indicates you don’t know shit.
BTW, Elinor Ostrom died today…I think her works indicates quite clearly that economics does have its uses.