July 28, 2011
Reuters invited leading economists to reply to Mark Thoma’s Op-Ed on the “great divide” in economics. Below is Dean Baker’s reply.
This is a very nice piece and Mark’s points are well-taken. However, as someone largely on the outside, I would go a step further. I see zero accountability for bad performance within economics either among those who write about it as academics or for those who practice it in business and government.
This is very clear as we seem doomed to spend a decade or more digging out of the wreckage of the housing bubble. Instead of trying to hold people at the Fed, in the Bush Administration, at the regulatory agencies, at Fannie and Freddie accountable, the refrain “who could have known” is used as a collective alibi. Holding economists accountable for this policy failure of monumental proportions is seen as just plain vindictive.
Of course this is not the only policy failure for which economists have used the “who could have known” alibi. The collapse of the stock bubble gave us almost four full years of zero job growth. Still no one in policy circles saw their career suffer in any way for failing to see this bubble and the implications of its collapse.
There are many other examples where the economists in charge completely missed it (e.g. the East Asian financial crisis and the IMF response, Argentina’s crisis and the IMF response, the Mexican peso crisis). The reality is that the main policy institutions are controlled and populated by “yes” men (and women) who know that getting ahead means repeating what the person ahead of you in the hierarchy wants to hear. There is never any penalty as long as you are wrong with everyone else.
Economics tells us what to expect when workers need not fear sanctions or dismissal even when they don’t do they job, as long as they please their boss. We get dull, unimaginative workers who don’t do their jobs. Welcome to the world of modern economics.
