Wednesday, July 14, 2004
Defunct economics
"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggereated compared with the gradual encroachment of ideas…. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil…" John Maynard Keynes
Tyler Cowen has a list of eight economic theories he used to believe but now considers empirically falsified or uncertain. Some of these are no-brainers (monetary targeting, or the idea that privatization without the rule of law will produce a functioning market economy); others are ideas that still haunt us: the idea that increases in minimum wages necessarily cost us many low income jobs and the idea that capital mobility in developing countries will lead to macro-stabilization, for example. But the whole list is quite interesting.
Update: The Crooked Timber discussion of this post is quite interesting, if you ignore the silly scientism debate. I especially like the fuzzy generalization that many economists are coming to accept that the world works like something in between the rational expecations and Keynesian ideal types. I also like the point that the real political battle over unemployment may be a matter of income distribution.
Tyler Cowen has a list of eight economic theories he used to believe but now considers empirically falsified or uncertain. Some of these are no-brainers (monetary targeting, or the idea that privatization without the rule of law will produce a functioning market economy); others are ideas that still haunt us: the idea that increases in minimum wages necessarily cost us many low income jobs and the idea that capital mobility in developing countries will lead to macro-stabilization, for example. But the whole list is quite interesting.
Update: The Crooked Timber discussion of this post is quite interesting, if you ignore the silly scientism debate. I especially like the fuzzy generalization that many economists are coming to accept that the world works like something in between the rational expecations and Keynesian ideal types. I also like the point that the real political battle over unemployment may be a matter of income distribution.
