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The Wrongest Profession | Dean Baker
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"How economists have botched the promise of widely distributed prosperity—and why they have no intention of stopping now"

"OVER THE PAST TWO DECADES, the economics profession has compiled an impressive track record of getting almost all the big calls wrong. In the mid-1990s, all the great minds in the field agreed that the unemployment rate could not fall much below 6 percent without triggering spiraling inflation. It turns out that the unemployment rate could fall to 4 percent as a year-round average in 2000, with no visible uptick in the inflation rate.

As the stock bubble that drove the late 1990s boom was already collapsing, leading lights in Washington were debating whether we risked paying off the national debt too quickly. The recession following the collapse of the stock bubble took care of this problem, as the gigantic projected surpluses quickly turned to deficits. The labor market pain from the collapse of this bubble was both unpredicted and largely overlooked, even in retrospect. While the recession officially ended in November 2001, we didn’t start creating jobs again until the fall of 2003. And we didn’t get back the jobs we lost in the downturn until January 2005. At the time, it was the longest period without net job creation since the Great Depression.

When the labor market did finally begin to recover, it was on the back of the housing bubble. Even though the evidence of a bubble in the housing sector was plainly visible, as were the junk loans that fueled it, folks like me who warned of an impending housing collapse were laughed at for not appreciating the wonders of modern finance. After the bubble burst and the financial crisis shook the banking system to its foundations, the great minds of the profession were near unanimous in predicting a robust recovery. Stimulus was at best an accelerant for the impatient, most mainstream economists agreed—not an essential ingredient of a lasting recovery.

While the banks got all manner of subsidies in the form of loans and guarantees at below-market interest rates, all in the name of avoiding a second Great Depression, underwater homeowners were treated no better than the workers waiting for a labor market recovery. The Obama administration felt it was important for homeowners, unlike the bankers, to suffer the consequences of their actions. In fact, white-collar criminals got a holiday in honor of the financial crisis; on the watch of the Obama Justice Department, only a piddling number of bankers would face prosecution for criminal actions connected with the bubble.

There was a similar story outside the United States, as the International Monetary Fund, along with the European Central Bank and the European Union, imposed austerity when stimulus was clearly needed. As a result, southern Europe is still far from recovery. Even after another decade on their current course, many southern European countries will fall short of their 2007 levels of income. The situation looks even worse for the bottom half of the income distribution in Greece, Spain, and Portugal.

Even the great progress for the world’s poor touted in the famous “elephant graph” turns out to be largely illusory. If China is removed from the sample, the performance of the rest of the developing world since 1988 looks rather mediocre. While the pain of working people in wealthy countries is acute, they are not alone. Outside of China, people in the developing world have little to show for the economic growth of the last three and a half decades. As for China itself, the gains of its huge population are real, but the country certainly did not follow Washington’s model of deficit-slashing, bubble-driven policies for developing countries.

In this economic climate, it’s not surprising that a racist, xenophobic, misogynist demagogue like Donald Trump could succeed in politics, as right-wing populists have throughout the wealthy world. While his platform may be incoherent, Trump at least promised the return of good-paying jobs. Insofar as Clinton and other Democrats offered an agenda for economic progress for American workers, hardly anyone heard it. And to those who did, it sounded like more of the same."

"At this point, the deficit hawks typically start raising apocalyptic fears about higher taxes impoverishing our children. I have three responses to this claim.

The first is that we are all paying much higher Social Security and Medicare taxes than our parents and grandparents did. Are we therefore the victims of generational inequity? What’s more, the main reason Social Security costs are rising is that our kids will live longer lives than we will. In other words, the dire specter of a generously subsidized cohort of older Americans is actually a sign of widespread social progress. (High Medicare costs are due to an incredibly inefficient health care system, but that’s another story—one that deficit hawks are also in the midst of monkey-wrenching in order to delegitimize any state-supported solution.)

My second reply is that we should be worried about after-tax income, not the tax rate. Recall that austerity policies favored by deficit hawks may have already cost us the equivalent of an increase in the payroll tax of 14 percentage points. We’re supposed to get hysterical over the prospect that our kids may pay 2 to 3 more percentage points in payroll taxes, but be unconcerned about this huge and needless loss of before-tax income?

More generally, if we manage to reverse the wage stagnation of the past thirty-plus years and see ordinary workers once more take a share of the gains of economic growth, their before-tax pay will be 40 to 50 percent higher in three decades than it is today. If they have to give back some of these gains in higher payroll taxes in order to support a longer retirement, it’s hard to see just what the problem would be. (The bigger question, of course, is whether we can succeed in creating a political economy in which ordinary workers will once again share in generalized economic growth.) And taxes are just one way in which the government imposes costs on citizens. Donald Trump wants to have a massive infrastructure program financed by the creation of toll roads. These tolls will be paid to private companies and will not count as taxes. Feel better?

On a much larger scale, the government grants patent and copyright monopolies as an incentive for research and creative work. In the case of prescription drugs alone, these patent monopolies cost close to $350 billion a year (approximately 1.9 percent of GDP) over what the price of drugs would be in a truly free market. Even as deficit hawks try to convince us that the government can’t afford to borrow another $50 billion a year to finance the research done by the pharmaceutical industry, they tell us not to worry about the extra $350 billion we pay for drugs because of government-granted patent monopolies. This monomaniacal obsession with tax burdens, to the exclusion of any reckoning with the burden of patent monopolies, shows yet again that the deficit hawks’ oft-professed concern for our children’s well-being is purely rhetorical, and in no way serious.

We should remember that we will pass down a whole society to our kids—including the natural environment that underwrites the quality of life of future generations. If the cost of ensuring that large numbers of children do not grow up in poverty and that the planet is not destroyed by global warming is a somewhat higher current or future tax burden, that hardly seems like a bad deal—especially if the burden is apportioned fairly. Now suppose, by contrast, that we hand our kids a country in which large segments of the population are unhealthy and uneducated and the environment has been devastated by global warming, but we have managed to pay off the national debt. That is, after all, the future that many in the mainstream of the economics profession are prescribing for the country. Somehow, I don’t see future generations thanking us."
economics  economists  us  policy  politics  deanbaker  health  healthcare  deficits  government  governance  gdp  priorities  labor  markets  capitalism  socialsecurity  bubbles  greatrecession  2018  china  portugal  spain  españa  greece  eu  paulryan  timothygeitner  donaldtrump  taxes 
july 2018 by robertogreco
The United States Didn’t Just Help Topple Allende—We Trained the Economists, Too | The Nation
"A new documentary, Chicago Boys, looks at the Chilean economists who brought neoliberalism from the halls of Chicago to the policies of Latin America."
chicagoboys  economics  miltonfriedman  chile  history  pinochet  us  salvadorallende  economists  policy  politics  greggrandin  2015  1973 
september 2017 by robertogreco
Why Are Economists Giving Piketty the Cold Shoulder? | Boston Review
"So where does that leave us, and specifically, where does it leave Capital in the Twenty-First Century, three years after its publication? It seems strange, perverse even, to say that its influence has been “quiet” when it has had great influence on public debate. But what this tour of the landscape of academic economics tells us is that, despite its hostile reception, Piketty’s influence, and that of this book in particular, continues to grow in the academic realm and is not likely to wither and die anytime soon—much as that might pain the harshest critics or the many more who have kept their distance.

For the latter, unfortunately, it is all too easy to keep looking the other way. It is increasingly possible to have a comfortable and rewarding life as a professional economist and never even consider the broad issue of inequality or the controversial explanations for and consequences of it that Piketty offers. Social norms used to require economists to at least take on broad public sentiment and to consider the issues of the day when setting their agendas, but the amount of money available for economics research and teaching has never been higher, no matter the esteem (or lack thereof) in which economists are held by the public. High officials in government, in corporate boardrooms, in courtrooms, and in university administrations, alumni bodies, and boards of trustees still want to hear what economists have to say (or at least to make a point of ostentatiously seeking out their advice and approval), and to have that approval validated in public.

All of which avoids the crucial question: are we actually doing or saying anything to make the economy serve the people who inhabit it? Economists could very easily spend their individual and collective lives avoiding that question as the economy crumbles around them, with Piketty’s book serving as little more than a cry in the wilderness. Right now, there is no assurance it won’t end that way, but by reading between the lines, my suspicion—and hope—is that Piketty is not one in a series of pop–social science fads. Rather, his work on inequality is an agenda-setting and generation-marking intellectual achievement, potentially as explosive (albeit with a longer fuse) in academia as it has been outside of it."
economics  inequality  thomaspiketty  2017  capitalism  neoliberalism  latecapitalism  economists 
may 2017 by robertogreco
more than 95 theses — Now how about this: We know that greenhouse gases...
Now how about this: We know that greenhouse gases are producing destabilizing changes in the Earth’s climate. And that human beings evolved from other species over millions of years. And that Barack Obama is a Christian. And that Hillary Clinton had nothing to do with the death of Vince Foster.

Large numbers of Americans deny those and many other assertions. Why? Because the trustworthiness of the authorities that make the claims has been under direct and continuous attack for the past several decades — and because the internet has given a voice to every kook who makes a contrary assertion. What we’re left with is a chaos of competing claims, none of which has the authority to dispel the others as untrue.

—Damon Linker [ ]

Most of what Damon says here is exactly right, but he’s leaving out another major factor: the toxic combination of habitual arrogance and habitual error that afflicts so many of our “authorities.” Consider the amazingly inaccurate track record of expert economic forecasters [ ]. Consider the vast claims made by neuroscientists wielding fMRI machines — machines that consistently yield false results [ ]. And consider the constant cheerleading for expert bullshit from much of the media.

It is true that “the trustworthiness of the authorities that make the claims has been under direct and continuous attack for the past several decades” — but it is also true that some of those authorities deserve to be attacked, and indeed to be attacked more strongly than they are. So in this situation, what is the ordinary person to do? How is she supposed to tell the difference between the reliable expertise of climate scientists and the unreliable “expertise” of yet another neuroscience charlatan? Isn’t it perfectly understandable that in such a noisy environment she will say, “Yeah, right, ‘experts’ — who needs that crap?”"
alanjacobs  damonlinker  arrogance  experts  trustworthiness  science  neuroscience  2016  confidence  skepticism  economics  economists  politics  debate  information  criticalthinking  media 
september 2016 by robertogreco
People don’t trust economists anymore — Quartz
"For most of my career it has been good to be an economist. I felt wise, I felt heard. Sure, I got constant reminders from well-meaning people that no one behaves in the rational way that economists generally presume people do. But otherwise it seemed economists had influence and prestige.

No longer. On both the left and on the right, on both sides of the Atlantic, there’s been a resounding rejection of economic advice from experts in the field.

A majority of the UK electorate voted for Brexit despite dire warnings from economists. In America, the Democrats’ platform includes a $15 national minimum wage despite the fact that even left-leaning economists worry $15 is too high. And though economists maintain that the US benefited from deals like NAFTA, the Republicans, as well as some influential Democrats, think past trade deals were a mistake and are wary of future ones.

Meanwhile, economists may disagree on whether short-term government spending provides economic stimulus, but most worry about the cost of long-term structural deficits. Yet instead of reining in entitlement spending, there’s a mainstream push to make even bigger, unfunded promises.

It wasn’t always this way. Plenty of government administrations have made bad economic choices, but on balance, policy makers embraced the advice of economists—to promote trade, to run budget surpluses when the economy is booming, to adopt incentives to promote and subsidize work. But now many of these ideas, considered generally successful up until recently, have fallen out of favor with politicians as well as the public.

The most obvious reason for the recent populist resurgence is that things are terrible.

Economists promised free, unregulated markets would mean more growth—and then the Great Recession happened. Most economists support free trade but minimized the fact that, just like any policy shift, more trade would create winners and losers in the short run. In developed countries like the US, jobs in manufacturing are disappearing and wages are stagnant.

The non-stop news cycle and social media also may have played a role. Never before has the public had to endure seeing how the economic sausage gets made. Economists are notorious for holding different points of view. It is one of few fields in academia that boasts political diversity. But in the last few years the divisions seem to have become more politicized—and these divisions have spilled into social media, where they are frequently dissected by non-economists.

Spirited discussion is how consensus evolves, is thrown over, and evolves again. But this process may have caused less damage to the field when academic arguments were more cloistered. Now it creates an impression that economists are pure ideologues, and that people, and governments, can pick whatever economic argument is politically convenient for them.

The economics profession may deserve to lose some trust. Net-net, there may be more winners than losers from trade, but that doesn’t lessen the burden economic that households on the losing side have had to carry; we indeed may have minimized those costs. Economic theory predicts technology will bring more productivity and prosperity, but instead of making vague promises about the future, economists could be doing more to figure out how to make the transition less painful for people in jobs threatened by technology.

Meanwhile, the public keeps losing confidence.

This trend of rejecting expertise isn’t limited to economics. Despite overwhelming evidence and advice to the contrary, people are eschewing vaccines, boycotting GMO food, arguing with the theory of evolution, and rejecting the science of global warming. Economic populism may just be another example of more expert skepticism, which goes in waves and is nothing new. But what is new and worrying is how much populism seems to be infecting our politics now, as evidenced by the platforms of America’s two major parties. Next could be actual policies."
economics  academia  trust  economists  2016  allisonschrager 
july 2016 by robertogreco
Spreadsheets of power: How economic modelling is used to circumvent democracy and shut down debate | The Monthly
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"Most people think it is hard to put a dollar value on a human life, but they’re wrong. It’s easy. Economists do it all the time.

Most people think that all human lives are equally valuable. And most think economic modelling is boring, irrelevant to their busy lives, and unrelated to how our democracy is functioning. They’re wrong about those, too.

About ten years ago, a lawyer rang to ask if I would do some (economic) modelling. “It depends,” I said. “What’s the job?”

“We want you to put a dollar value on the life of a dead mother,” said the lawyer. “We are suing a doctor for medical negligence, and the insurance company wants to value her life at zero because she wasn’t working. She had no future earning potential. Can you estimate the value of the housework she would have performed?”

I still feel sad when I think about it: for the family, for myself, and for a society in which asking such a question is not only acceptable but also necessary. The dilemma for the widower and the lawyer, and for me, was that if someone didn’t put a dollar value on the love and care that a mother gives her children, the father would wind up with even less money to care for the kids he would be bringing up by himself.

Of course, economists have no real way to value love and affection, so I valued ironing, laundry and child care instead. I got my hands on data about how mothers with three kids use their time. I found data on the price of buying individual household services like ironing, and the price of live-in maids and nannies. I forecast the age at which the kids would leave home. My forecast was based on a meaningless average of kids who do go to uni and kids who don’t. My spreadsheets were huge, complex, scrupulously referenced and entirely meaningless. Like all good forecasters I estimated the “value” of her life to the cent, and as happens in all good negotiations, the lawyers ultimately settled for a nice round number. The only good thing about the number was that it was bigger than zero.

The topsy-turvy “morality” of economics is built in to models that politicians, lawyers, economists and lobby groups use to persuade the public, in all parts of public life: models that say, for instance, that we can’t afford a price on carbon; that life-saving medicine for some people is “too expensive”; or that the loss of an entire species is justifiable if woodchip prices remain above $100 per tonne.

Everyone who uses economic models to excuse the inexcusable wants you to believe that the models are boring. The last thing they want you to do is to pay attention.


Many economists have calculated that it will be cheaper for the world to endure climate change than to prevent it. The models they use to draw this bizarre conclusion are built on thousands of assumptions about everything from the value of human life to the willingness of consumers to buy smaller cars if petrol becomes more expensive. If any one of those assumptions is wrong, the answer will be wrong. If hundreds of the assumptions are out, the answer becomes meaningless. (Some economists then argue that if hundreds of the assumptions are wrong then the errors might cancel each other out. Seriously.)

Imagine you were asked to model the costs of dangerous climate change. Imagine you were in possession of the likely number of people who will die as a result of storms, floods and droughts. Imagine you knew what countries they would die in, and how many years into the future. Would you value all of their lives equally? Would you assume that a Bangladeshi and an American life were “worth” the same? Would you think that the death of a child in 20 years’ time was worth as much as the death of a child in 50 years’ time?

In our democracy, these ethical questions are usually answered by economists, to two decimal places.

Most economic modellers do not assume that all human lives are equal. Bjorn Lomborg, for example, one of the world’s most famous climate sceptics, uses modelling that assumes the lives of people in developing countries are worth a lot less than the lives of Australians or Americans. While the US Declaration of Independence may declare that all men are created equal, most economic models assume that all men (and women) are worth a figure based on the GDP per capita of their country.

Late last year, Bjorn Lomborg asked to meet me, and I wondered whether talking to him would be good fun or a waste of time. It was neither: it was scary and illuminating. After 15 years as the smiling face of climate inactivists, Lomborg had raised his sights. His new mission was to ensure that governments also deliver inaction on global poverty alleviation, public health and gender inequality.

When we met, Lomborg proceeded to explain how his team of economists at the Copenhagen Consensus Center had decided that a number of the United Nations’ Millennium Development Goals weren’t worth pursuing. His tool of choice for defending such a position? Economic modelling.

You probably didn’t know economists had an assumption about humanity’s primary goal, did you? No wonder developing countries think that the developed countries don’t really care about their suffering as much as our inconvenience. We don’t.

Assumptions such as those made by Summers sit at the heart of the economic models that are regularly used to oppose carbon taxes, support free trade agreements and prevent the introduction of environmental regulations or more generous welfare safety nets.

Much of the power of economists is based on the public’s (understandable) lack of desire to read reports written in algebra. That’s why we like to use algebra.

In 2011, Denmark’s general election saw its centre-right government tossed out of power, to be replaced by a minority centre-left coalition led by the country’s first female prime minister, Helle Thorning-Schmidt.

Bjorn Lomborg’s Copenhagen Consensus Center was one of the first casualties of the change of government. When it was announced that its more than $1 million in funding would be cut, Lomborg visited the new prime minister, urging her to reconsider the government’s decision. “I’d love to show you how the Copenhagen Consensus is a good idea,” he was reported as telling her.

“I think that probably might be right, Bjorn,” she reportedly responded to the sceptical environmentalist. “But I will just get so much more mileage out of criticising you.”

Costs and benefits can be calculated any number of ways, and the modeller’s assumptions are crucial to the end result. Lomborg had confidently assumed that the Danish taxpayer would continue to fund his work. His cost–benefit analyses had found that more effort should be put into free trade and less money spent on tackling poverty and climate change. But, as with all such efforts, garbage in, garbage out.

There is a role for economists, and economic modelling, in public debate. Its role should not be to limit the menu of democratic choices. Instead it should be to help explain the trade-offs.

Good modellers aren’t afraid of explaining their assumptions. The clients who pay best, however, don’t want the best modellers. They want people who can write a fat report to slam on the fucking table."
economics  power  democracy  control  2015  economists  ideology  modeling  morality  politics  policy  lobbyists  persuasion  climatechange  justification  capitalism  larrysummers  worldbank  welfare  humanism  humanity  ethics  neoliberalism  richarddenniss  bjornlomborg  copenhagenconsensuscenter  riotinton  consensus  petercostello  joehockey  australia  inequality  poverty  representation  environment  pollution 
april 2015 by robertogreco
The status of economists: The power of self-belief | The Economist
"“IF ECONOMISTS could manage to get themselves thought of as humble, competent people, on a level with dentists, that would be splendid!” said John Maynard Keynes, a British economist. Despite their collective failure to predict the financial crisis, let alone follow Keynes’s injunction, economists are still very influential. They write newspaper columns, advise politicians and offer expensive consulting services to business-folk far more than other academics. A new paper* tries to explain why.

One reason, say the authors, is that economists have come to believe that they are superior. A survey in 1985 found that just 9% of graduate students in economics at Harvard strongly believed that economics was “the most scientific of the social sciences”. But as economics became ever more mathematical, its practitioners grew in self-confidence. By 2003 54% of the graduate economists studying at Harvard strongly agreed with the statement. A glance at a popular blog for doctoral students in economics,, gives a taste of the contempt in which its users hold other disciplines. Sociologists “play around with big important ideas without too much effort or rigour,” one econo-nerd asserts.

The authors point out that economists demonstrate their self-belief in subtler ways too. Articles in the American Economic Review cite the top 25 political-science journals one-fifth as often as the articles in the American Political Science Review cite the top 25 economics journals. Another study found that American economics professors were less likely than their peers in other subjects to agree with the notion that “interdisciplinary knowledge is better than knowledge obtained by a single discipline.”

The odd thing, the authors argue, is that we believe in economists almost as much as they believe in themselves. Journalists and politicians seek strong arguments and clear answers. Most academics are reticent types: historians, for instance, question whether you can learn anything from history. “For a moderate fee,” jokes Deirdre McCloskey, an economic historian, “an economist will tell you with all the confidence of a witch doctor that interest rates will rise 56 basis points next month or that dropping agricultural subsidies will increase Swiss national income by 14.8%.”"
economics  economists  2014  confidence  self-importance 
december 2014 by robertogreco
Small Is Beautiful: Impressions of Fritz Schumacher by Donald Brittain, Barrie Howells, Douglas Kiefer - NFB
"This film is a short documentary portrait of economist, technologist and lecturer Fritz Schumacher. Up to age 45, Schumacher was dedicated to economic growth. Then he came to believe that the modern technological explosion had grown out of all proportion to human need. Author of Small Is Beautiful - A Study of Economics as if People Mattered and founder of the London-based Intermediate Technology Development Group, he championed the cause of "appropriate" technology. The film introduces us to this gentle revolutionary a few months before his death."

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small  economics  video  film  documentary  scale  growth  sustainability  1978  donaldbrittain  barriehowells  douglaskiefer  philosophy  efschumacher  humanscale  dehumanization  passivity  conditioning  unschooling  deschooling  humans  society  behavior  economists  place  roots  community  mobility  rootedness 
february 2014 by robertogreco

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