Krugman’s blog, 4/28/15

There was one post yesterday, “VSPs versus MSEs:”

Simon Wren-Lewis tries to put his finger on something I’ve also been trying to get at — the sharp difference between what influential people think they know about economics and what people who actually study the economy think they know. My take may be slightly different at the margin, but I do believe that it’s important.

On one side you have the Very Serious People — politicians, media figures, big business types who like to weigh in on public affairs. On the other side you have mainstream economists. So it’s VSPs versus MSEs.

When talking about “received wisdom” Simon focuses on the views of policy departments at central banks; I’d like to cast this net wider, which means that we have to decide what “mainstream” means. I don’t think I want to base this on journal publications; what I mean, more vaguely, is economists who routinely weigh in on policy issues (so that they have some reality sense) but are not essentially hired advocates for one position or another. Luckily, we now have regular surveys of economists who fit that description, by the Booth School in the US and the Centre for Macroeconomics in the UK.

Now, many people imagine that the views of VSPs must be based on, or at least consistent with, what MSEs are saying. Many people I talk to believe this, for better or for worse; they think that obsession with debt and deficits must be right because “everyone” shares it, or alternatively that the economics profession is responsible for that destructive obsession.

So it’s important, I think, to understand that this isn’t at all right. On questions of stimulus and austerity, in particular, what the VSPs think they know is quite at odds with mainstream economics. In the US, all the important people know that the Obama stimulus failed, while almost all mainstream economists believe — based on actual evidence — that it succeeded. In the UK, all the important people know that austerity boosted the economy, while only a small minority of mainstream economists agrees.

Needless to say, mainstream economists could be wrong. They certainly have been in the past — very few, for example, took seriously the possibility of a financial panic in the modern world. But on the whole the MSEs have been bastions of good sense these past seven years or so as compared with the political world, and understandably so: while heterodox economic ideas sometimes do turn out right, finance ministers are the last group of people you want picking and choosing which new working paper should be the basis of policy.

So by all means let’s keep an open mind about new ideas. But we should bear in mind that the world would be in much better shape right now if economic orthodoxy had in fact been followed. In practice, all the heterodoxy with any real-world influence has been used by politicians to justify policies that have deeped the slump and increased suffering.

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