Economics appears to be devolving in front of our very eyes. While the world waits desperately for a breakthrough in economic thought, some of the leading minds in this field have abandoned intellectual curiosity, threatening instead to resort to methods that would make Tony Soprano proud.
Let the record show that these guys were completely wrong
As you are probably aware, modern-day economists won't be challenging Nostradamus' prophetic powers anytime soon. Let's review some quotes from leading economists from just a few years ago:
"I expect there will be some failures. ... I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system."
-- Ben Bernanke, Federal Reserve chairman, Feb. 28, 2008.
Helicopter Ben certainly got this one wrong, probably at the worst possible time. Shortly after this comment, numerous banks failed -- particularly investment banks like Bear Sterns, now part of JPMorgan Chase
"The euro could replace the U.S. dollar as the reserve currency of choice."
-- Alan Greenspan, former Federal Reserve chairman, September 2007.
Not much to be said here, in light of the current crisis in the European Union. Although the EU ran stress tests on its banks, temporarily providing relief to financial markets, seven banks failed those tests. Clearly, Americans should not look to the head of the Federal Reserve for accurate predictions. There were certainly economists who had dissenting views from Bernanke and Greenspan. However, few can claim that they are consistently correct in their prognostications.
So where are we now?
The current state of the "dismal science" is not exactly the stuff of Adam Smith or David Ricardo. Economics has always been more art than science. Besides the law of supply and demand, there is little else that all economists agree on.
Currently, there are numerous schools of thought in economics, including but not limited to Keynesian economics, New Keynesian economics, New Classical economics, and Austrian economics. While some theories are roughly similar to each other, some are radically different.
Disagreements between these schools can run the gamut. For instance, Austrian economics tends to believe that the government should abstain from intervening in the economy, taking a "do no harm" approach. Keynesian economics is its mirror opposite in this regard.
Without clear agreement between economists on basic economic theory, it is difficult to ascertain the correct public policies we need to recover from our current recession. Unfortunately, we're now about one financial crisis away from Vince McMahon holding a death match to name the world's best economist.
I am Jack's insufficient economic model
The brawling started earlier this year, with a debate on China's currency policy between Morgan Stanley's
Don't pity Krugman; he can dish out punishment as well as he takes it. He's currently deadlocked in an ongoing war with Harvard's Niall Ferguson on just about every economic topic imaginable. The two started arguing a little more than a year ago, when debating whether the Obama administration's economic policy was an inconsistent mix of Keynesian economics and Monetarist economics. Since then, their feud has only expanded.
Most recently, Krugman put up a blog post titled "I'm Gonna Haul Out The Next Guy Who Calls Me "Crude" And Punch Him In The Kisser," after The Economist branded him with that offending epithet. Those are tough words for an economist, especially based on a disagreement on economic philosophy.
So when is the fight?
While disagreements in this field are not atypical, let's hope that leading economists return to their usual studies, and retreat from fisticuffs. The real issue at hand is that there's no economic model or framework to explain what the heck is happening across the globe -- and more importantly, how to fix it.
Though he might be at the center of the current skirmish, Krugman is correct about the current state of economics. He believes that we are in the "Dark Ages" of macroeconomics, since much knowledge on the topic has been forgotten. Yet he forgets to mention the reason why it is forgotten: because there's no consensus on economic philosophy.
Without a better understanding of today's global economy, you're better off ignoring all the so-called experts who claim that such-and-such is the next bubble, or that the country is going to experience some incredible amount of growth next year. As the financial crisis has proven, most of these folks are no better at predicting the future than a Magic 8-ball.
How do we resolve this?
I humbly suggest that economists leave the fighting to guys like Brock Lesnar, and get back to work on figuring out a solution to getting the country out of this recession. I suspect we'd all be better off for it. And if they can't solve their differences like intellectuals, well, wouldn't it be interesting to see Moody's economist Mark Zandi square off with New York University's Nouriel Roubini in a steel cage match?
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