I think your assumption of malice is unfounded. A likely benign explanation is that Cowen focused on areas there economists are in broad agreement without intent to mislead.
The Mont Pelerin Society was specifically founded to promote a certain view of economics, and the Chicago School was supported financially by some very rich sponsors who wanted a a pet academic alternative to progressive slant of Keynesianism.
The "consensus" in neoliberal economics and its core ideas - including "rationality" and "efficiency" - is a wholly manufactured political project, not an organic open-minded attempt to find credible scientific foundations.
Behavioral economics, which concerns itself with the effects of this phenomenon on economic decision-making, is one of the major branches of the subject studied today.
They don’t have heterodox people (eg marxists, Austrians, or MMT). Nor should they. CS departments won’t hire people who (for example) believe computers work via magic. Dollars and tenure lines are scarce and can’t be wasted on BS. There is a lot more diversity of thought in economics departments than commenters here know, but there are limits, as there are in every field.
This is literally the foundation of macroeconomics AFTER Keynes. This is (one of several) reasons why Keynesianism was rejected.
Every single macroeconomist in every mainstream department in the country (and everyone in a central bank anywhere) would agree with exactly what you said AND say that it is precisely that fact which makes macroeconomics really hard.
This is why, for example, even the bare-bones simplest macroeconomic model you learn in your first year graduate macro class must include some notion of the agents' expectations.
It would be an error if we didn't do that. But fortunately, it's been at least 50 years since we started thinking about exactly that problem.
Econ departments don't have Marxists for the same reason philosophy departments don't have Buddhist scholars: it's just not where they belong. The Buddhists belong in religious studies, and the Marxists belong in the political science department.
This is *complete* nonsense. No one pays me to think or say anything. No one pays anyone in my department anything to take a particular position.
For a simple example of what nonsense your claim is: the economist’s definition of rationality is that preferences are (1.) complete and (2.) transitive. That’s it. (See any microeconomics textbook for proof. Sometimes (3.) reflexivity is included, sometimes smaller sets of axioms which imply the others are used instead.)
How “political” is that definition?? Did someone rich guy pay Paul Samuelson or Gerard Debreu or Kenneth Arrow to use that definition 80 years ago? Obviously not - moreover Arrow and Samuelson at least were on the political left! (And I simply don’t know Debreu’s politics. He could have been on the left too.)
Your comment is *entirely uninformed* and *totally unfair* to an entire profession.
How do economics professors get hired? By impressing other economics professors. And by having the power to win funding for the department. Who are the people that tend to fit those criteria? Mostly, those who already agree with the existing establishment, and those who already have views amenable to the well-resourced bodies that distribute funding.
This claim is true.
> Who are the people that tend to fit those criteria? Mostly, those who already agree with the existing establishment
This claim is false. If you can empirically support a result which shows that something most other economists believe is likely false and can do so convincingly, you can write your ticket to any department in the country. Some of the most successful graduate students every year do things like this (not all, because it's very hard to do). But the profession is 100% open to this kind of work.
> And by having the power to win funding for the department.
This demonstrates a misunderstanding of how economics departments are funded. Grant funding is a very small part of the departmental budget everywhere. We are not (to take an example where department funding does depend on grants) health policy departments.
It's almost impossible to do that though isn't it? Economics isn't a hard science, it's not like you can run RCTs or experiments. And all actually-existing economic systems are situated within an actually-existing political, social and historical context, meaning we only ever observe a tiny fraction of the possible universe of economic systems. There is no possibility to explore counterfactuals.
> This demonstrates a misunderstanding of how economics departments are funded. Grant funding is a very small part of the departmental budget everywhere
I never mentioned grants, departments still have to be funded somehow, whatever that process is, it will introduce selection biases.
Not at all. It IS hard, but that's because research is hard. If it were possible to easily show widely-held beliefs to be wrong, someone would have done it already. (No different from any other scientific field!) But it does happen.
>Economics isn't a hard science, it's not like you can run RCTs or experiments.
Also wrong. You can in many areas. Indeed, there is a gigantic literature on field experiments, and the whole field of development economics runs on RCTs. In macro it is difficult, because no one is going to give you a whole economy to play with, but lab experiments in macro exist. Most empirical work in macro is not based on experiments.
But that does not make it impossible to learn anything, it just makes it hard. Indeed, that is why we have spent years developing methods to solve this problem, then more years criticizing and refining our own methods. That process will never end.
> And all actually-existing economic systems are situated within an actually-existing political, social and historical context, meaning we only ever observe a tiny fraction of the possible universe of economic systems. There is no possibility to explore counterfactuals.
Again, this is what makes it hard. It is not impossible. To answer certain questions for certain models may be impossible b/c there is no way to identify the parameters in question empirically.
You make these claims like it makes our whole enterprise worthless or impossible. We have taken it as a challenge to attempt to develop interesting methods to answer hard questions.
Exploring unseen counterfactuals on the basis of parameters estimated from models given existing data is literally my bread and butter EVERY day (I am not a macroeconomist, but I am an economist). And it is the bread and butter of many of us.
Give us some credit, an overwhelming majority of us are not conservative ideologues. And if you really want to know how it works, HOW we learn things from data (in macro and elsewhere) I can provide references.
Last week, I thought divining an Erdős Number for economics would be amusing.
My casual effort hasn't identified a sole patient zero, prime mover, economic Eve (or Adam). The MPS roster has multiple candidates.
Any suggestions?
https://en.wikipedia.org/wiki/Erdős_number https://en.wikipedia.org/wiki/Mont_Pelerin_Society
Taking the first claim as an example (decline in demand leads to unemployment and recession, because sticky wages etc.), I suppose one could argue that just because we've seen this happen before doesn't mean it's an inevitability of human nature. I can imagine a society with a higher level of cooperation and shared responsibility, where everyone _does_ agree to take a small reduction in pay so that others can stay employed and the overall economy suffers less.
If you agree with that argument, my best response to it is that these macroeconomic "theorems" are supposed to be phenomenological rather than prescriptive. They have predictive power in the present economic system but are not necessarily useful in a society radically different from ours.
I agree that it would be an error to treat these emergent properties as some sort of inevitable laws of nature, which is a tendency that I've seen in debates.
The assumptions are set in stone before you can begin to do macroeconomics, given to you when you take Macro 101, to lay the foundation of your future work, rather than examined and challenged.
I don't think this is exactly malicious, but it bothers me that the field largely operates on, and draws research conclusions from, unchallenged assumptions.
What do you know about the research done by contemporary macroeconomists? Anything? Do you know how it is taught in graduate programs?
If you did, you would know that all macroeconomists have opinions about where their assumptions (basic and otherwise) limit their models and spend their careers trying to extend them and make them more realistic and take them to the data.
I am not a macroeconomist but I will defend how my colleagues approach the subject. You don’t know how difficult it is until you’ve tried to formulate a model that you can actually solve and made an attempt to take it to the data.
The field absolutely does not operate on “unchallenged assumptions.”
If a professor presents these assumptions as "truths" (as they have done, quite literally, via this article), graduate students are strongly disincentivized from thinking about challenging or contradicting them - if they want to pass their course, if they ever might want to get a job in that department, etc.
What contemporary graduate macro everywhere teaches you is a set of tools. You then have to ask and answer your own questions. There isn't any "indoctrination" as you seem to be imagining. It's not different at all from doing a math PhD and taking a first-year analysis sequence, or a CS PhD and taking an algorithms class. It is exactly the same.
If you can take these tools and show that any of the truths presented in this article are false and can do it in a convincing way, then (as I have said elsewhere in this thread) you are going to be able to get a great job in whatever department you want.
Understand something about the incentives in science - surprising and counterintuitive results, convincingly demonstrated, can have enormous payoffs.
The way you seem to be imagining things work in economics departments and graduate programs bears little relationship to the way things actually are.
This is not the opposite of taking those as axiomatic truths.
You're also calling them truths and saying it's on me (as a novice) to show them false? This only proves my point that they are not properly examined.
Like I said, it bothers me.
https://mru.org/principles-economics-macroeconomics-0#
> The Economics of Choosing the Right Career Defining the Unemployment Rate Is Unemployment Undercounted? Frictional Unemployment Structural Unemployment Cyclical Unemployment Labor Force Participation Taxing Work Women Working: What’s the Pill Got to Do With It?
I'm not trying to be glib here, but that seems to fit with the intent and title of the piece, does it not?
He says "The first and most important thing [..] is that a strong negative shock to demand [..] leads to a loss of output and employment"
Fair enough. Not even a comment of what causes the demand shock, but it's OK.
And then he jumps to:
" Nominal wages are sticky, for a complex mix of sociological reasons, and so employers do not always respond to lower demand with lower wages for workers. Instead they lay some people off, and that can lead to a recession."
The are a lot of assumptions there than are not for discussion, are just part of the framework.
He says: "The third thing to know is that if central banks go crazy increasing the money supply, the result will be high price inflation."
This is just not true, the central bank can increase the money supply all that they want, if the money is not spend in the economy there is not going to be inflation. This has been tested empirically by Japan in the last decades and the Fed and ECB more recently, but it seems that the theory is not going to change, not matter what the reality says.
The fourth truth is truth, I think :-)
Nominal wage stickiness, recessions etc has been the subject of an enormous amount of study (and wage stickiness is sufficient, but not actually necessary to cause recessions). And the exception to the rule that increasing the money supply is dealt with by the very next sentence from the one you've singled out as a gotcha. Liquidity traps were already baked into the theory.
Imagine if somebody dismissed the field of computer science as a distraction from database problems based on a blogger listing CAP theorem as one of its essential conclusions
>"And the exception to the rule that increasing the money supply is dealt with by the very next sentence from the one you've singled out as a gotcha."
I disagree with that. There is evidence that the mainstream view is wrong on this, but it's never recognized, not even discussed because it's one of the "truths of macroeconomics" (and because the rest of the building would start to wobble if recognized).
There is a good way to see it. If you know the mainstream model of macroeconomics, you can make predictions, are the predictions about the last decades right or wrong? What the model (the framework that the author is defending) says about what would happen with big increases of bank reserves in the system?
Because the predictions were wrong, instead of changing the theory, they speculate that the world has change while they were not looking. It seems to me that would not be allowed in other sciences.
Repeating a falsehood does not make it any less false. QE policy was designed by mainstream economists who did not want to see massive inflation, and as they predicted they did not see massive inflation, for reasons [partly] explained in the second sentence on that topic you have for some reason overlooked. The concept that the relationship between money supply and inflation was contingent on another variable called "monetary velocity" dates back to 1911 and the extent to which monetary stimulus produce growth rather than inflation in recession is the fundamental debate of macroeconomics. QE and Zero Lower Bound debates were not new in 2008 either.
Your assertion that economists' reaction was to "speculate that the world has change while they were not looking" no discussion is a confession of your own ignorance of contemporary macro, nothing more. (There's nothing wrong with being ignorant of contemporary macro - more exciting hobbies than reading macro papers exist - but plenty wrong with dismissing an entire field of study by reading and understanding only the first sentence of a summary paragraph)
I go back to my CAP theorem example. It would be possible to conclude from a one-line summary of CAP theorem that computer scientists cling to theory as an excuse for not working on better sharding technologies or anticipating the possibility of building databases at social media scale. But it would also be laughably wrong.
-Japan have been monetizing the debt for decades, what is the consequences predicted by the textbook mainstream for inflation and interest rates? And what mainstream think are the consequences of its high public debt?
-In 2011-2012 there was a crisis of sovereign debt for some countries of the Euro-area. The reason was that "the markets" perceived the debt of those countries as too risky, so, they demanded a high return. How was, by textbook macroeconomics, the crisis solved? Currently, those countries have bigger public debt that then, and, a very big (Covid) crisis in their hands. How mainstream economics explain that the returns demanded by the market are so low now compared to then?
-When was the last time that a country payed its public debt and what would happen if they do (by textbook macro)?
-What is the mechanism that produce inflation when you increasing reserves (monetary policy) instead of spending in the economy (fiscal policy) and why has not worked (except for the stock market)?
-What are the measures that Cowen is talking about when he says: "[..] central banks simultaneously act to decrease the velocity of money — that is, if they take measures to reduce borrowing and lending [..]"
1) Japan's public sector debt has risen over time, but is not unusually high by global standards. Mainstream macro suggested that Japan would struggle to stimulate further growth once its interest rates hit zero (structural reasons why Japan's economy slowed down is a book length topic) which is of course what happened to Japan before the rest of the world. QE was a slightly unconventional way of achieving the textbook macroeconomic goal of injecting more money into the economy when it slows down.
2) The European Central Bank announced emergency measures to ensure all governments affected by COVID have access to reserves of Euros. In 2011-2012 it didn't, taking the view that countries with massive deficits should resolve their problems by cutting spending. Bond buyers didn't trust that they would, which made national debt servicing even more expensive, though these countries would have had problems even without that.
3) I'm not aware of any country repaying all its public debts or any textbook macro suggestion that this would be a remotely sensible goal for them to aim for. Textbooks would imply that continuing to aim for the necessary fiscal surpluses during an economic slowdown would result in massive recessions long before the debt got near zero.
4) Monetary policy produces inflation from credit becoming cheaper resulting in more money being available to spend on goods and services (and less reluctance to lend or spend based on concerns about the cost of debt service). The responsiveness to monetary policy is reduced when people still don't want to borrow more and central banks can't make it any cheaper to borrow money than it already is. More unconventional interventions like buying stocks obviously directly and immediately increase stock prices, but the average stock holder is less likely to go out and buy more goods, services or staff with their returns than the average borrower, so doesn't necessarily boost the economy/inflation as much as injecting money to reduce interest rates.
5) Cowen's phrasing is, admittedly, vague and crap here. Much of the velocity of money decrease has already happened because people are not spending or investing or borrowing as much in the middle of an economic crisis. On top of that, you've got much of the additional spending being ring fenced or restricted to those not spending.
This is an interesting discussion but I don't want to extend it ad infinitum. A parting thought:
Your answer about ECB tell me that you agree that central banks can control bond yields. So, I have to ask myself who is the "mainstream economics" that we are discusing about. Maybe we are thinking of different people.
Was not Martin Feldstein? (1) is not Paul Krugman? (2)
(1) - http://bilbo.economicoutlook.net/blog/?p=33094 (2) - http://bilbo.economicoutlook.net/blog/?p=13970
You'll forgive me for not bothering to defend the half dozen articles Mitchell takes exception to in the second post (though I will say Krugman is given to glib generalisation when writing for mainstream audiences. A quality shared with pretty much every MMT blog going...)