Monday, February 01, 2010

The Dismal Science: Perhaps Not

The field of Economics is not the most dynamic and exciting scientific discipline (if it can be called a “science” in the first place), nor are economists the most ebullient or scintillating characters one might find. Most would picture economists as being rather nerdy, using language to justify their decisions that is at best incomprehensible, and at worse incoherent. In any number of articles printed in this column, I have furthered these characteristics as the embodiment of the breed. These portrayals were sometimes lampooned and made somewhat more interesting (I hope) by inserting humor to emphasize the depiction. So let’s start out in joke mode.
  • There are three kinds of economists, those who can count, and those who can’t.

  • An economist is a person whose trade is to do nothing and speculate about everything.

  • An economist is someone who doesn’t know what he is talking about –– and makes you think it’s your fault.

  • All it takes to be an economist is an unshakeable grasp of the obvious.

  • Economics is the only field in which it is possible for two people to get a Nobel Prize for saying opposite things. (See below).

  • When economists agree, it’s time to head for the hills.

  • Economics isn’t meant to make sense; it’s meant to make a living for economists.

  • An "acceptable" level of unemployment means that the government economist to whom it is acceptable still has a job.

Here is a new one told at an annual meeting of economists in January: You know you are an economist if you are inclined to sell your children now, but then decide to wait because you estimate that they may be worth more later.

Now to some (mainly economists), my use of these types of jokes is despicable, totally mischaracterizing the field of economics and the practitioners of that discipline. You must have heard that old adage about Harry Truman when he demanded, “Give me a one armed economist.” He had grown tired coping with long-winded, complicated explanations only to then hear the economist say, “On the other hand….” As a near economist (I was an Economics major in college), let me say: On the other hand, I must admit that despite my disdainful comments, there are some economists that have proven that the field of Economics can provide benefits to mankind.

There is a basic problem however, typified by the joke above regarding the Nobel Prize that actually was bestowed in 1975 on two economists with opposing views. One, Frederick Hayek, was a vocal critic of the legendary British economist, John Maynard Keynes. The other recipient of the award that same year, Gunnar Myrdal, was a supporter of Keynes’ theories. All of which leads us to perhaps the most controversial economist ever, John Maynard Keynes, and the fact that serious dissension persists within the Economist community as to the validity of Keynesian theories. While this debate has arisen in the past, it is even more crucial today since President Bush (only at the very end of his term) as well as the Obama administration staked the country’s ability to initiate an economic recovery upon Keynes’ theories.

Some readers might remember a two part series published in Viewpointe exactly one year ago in the January and February 2009 editions that provided a biographic sketch of Keynes, and a history of his economic theories during the Great Depression of 1929 (Part I, Part II). The Viewpointe articles were published well before the current firestorm that has developed, with Republicans deriding Keynes’ theory of initiating huge stimulus programs to combat the extreme economic meltdown we are experiencing, and questioning whether the Keynes’ concept is working. On the other hand (there we go again), Democrats assert that government intervention to help stimulate the economy is critical in solving the problems we face. Despite current arguments by Republicans, the Democrats continue to back the concept, and indeed, there are some from that party who believe that the dollars committed are insufficient to get the job done.

It is probably too soon to form any realistic conclusions as to which party is right, and that is what makes the issue particularly relevant. Nothing less than the fate of the country, and perhaps the world, depends on the theories of one man, John Maynard Keynes, who some consider the most influential Economist of the 20 th century. In fact, that was the sub-title of a new book titled, Keynes: The Rise, Fall, and Return of the 20 th Century’s Most Influential Economist. The author, Peter Clark is a professor at Cambridge University where Keynes also taught. This book was reviewed in a September 2009 issue of Business Week, under the headline, “The Redemption of Keynes: Rediscovering the man whose ideas helped avert economic collapse,”

A second book reviewed in that same Business Week article was Robert Sidelski’s titled, Keynes: The Return of the Master. Sidelski, Emeritus Professor of Political Economy at the University of Warwick also authored a three-volume biography of Keynes that ran to 1500 pages. Business Week suggests that, “Both authors combat the caricature of Keynes as a market-hating deficit-embracing, tax-and-spend socialist. And both argue that Keynes deserves better than to be trotted out only in times of crisis and that his ideas are relevant in the current debate over reforms.”

Despite that last statement, the Nobel Prize winning economist, James Buchanan, who actually commented favorably about Sidelski’s books, wrote the following about Keynes: “The legacy or heritage of Lord Keynes is the putative intellectual legitimacy provided to the natural and predictable political biases toward deficit spending, inflation, and the growth of government.” Gary Becker, another Nobel Laureate, is in agreement with Buchanan, deriding Keynesian economics.

Typifying the split amongst economists is Paul Krugman, a professor at Princeton, and a columnist for The New York Times who won the Nobel Prize for Economics in 2008, as well as Joseph Stiglitz, another Nobel Laureate. (By coincidence, and unknown to me until now, Krugman graduated from a high school in my hometown of Bellmore, N.Y). Both have been strong advocates for the principles of John Maynard Keynes as they apply to government interventions in economic depressions or recessions. In fact, Krugman has been one of those critical of what he believes to be an insufficient amount of stimulus money committed to the current crisis. In the event that a full economic recovery fails to materialize, some Keynesians will undoubtedly fall back on this sentiment to prove their point.

It has been said that Economics is, at best, an inexact, inadequate, and evolving set of theories seeking to explain complex relationships in a constantly changing world. The major insight that Keynes offered was regarding the inability of theories to explain actual events and how any attempt to apply the theory had unintended consequences. In an essay titled “The Great Slump of 1930,” published in December of that year, Keynes acknowledged: “We have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand.” We wonder whether Keynes anticipated that his statement would still have relevance 80 years later.