The Man From Econ 101

[phantom power]

Portes quotes a three-year-old piece from Niall Ferguson I mercifully missed, ridiculing me as the “man from Econ 101” who believed, foolishly, that huge government deficits could fail to raise interest rates in a depressed economy. Indeed, that is what Econ 101 said – and it has been completely right. Basic IS-LM macro also said that under these conditions printing lots of money would not be inflationary, and that cutting government spending sharply would cause the economy to shrink. All of this has come true.

So Econ 101 has done just fine – and perhaps more to the point, it has made successful predictions “out of sample”, that is, about what would happen under conditions very different from normal experience. This is the sort of thing that produces paradigm shifts in the hard sciences: light bends! Einstein is right!

So why the sense that macroeconomics is a mess? I’d say that it’s essentially political. The type of macroeconomics Portes and I do offends conservative notions of how things are supposed to work in a capitalist society, so they reject the theory no matter how well it performs, and throw their support behind other views and other people no matter how badly they get it wrong. As a result, all the public hears are arguments between dueling economists (some of them not knowing much about economics). That’s a big problem – but it’s not a problem with the economics, which has, once again, been spectacularly successful.

... to return to the original point: the fact is that these have been glory days for standard macroeconomics, which has done amazingly well under crisis conditions. If you’ve heard different, blame politics, not the economics itself.

http://krugman.blogs.nytimes.com/2012/06/26/economics-good-and-bad/

[MissMarple]

1. It's too bad that so many voters really don't understand economics.

I know I don't. But I do know that our economy is consumer based and people are not buying because we are still cutting jobs. A job is a job, whether it's in the public sector or the private sector. Someone has to start paying people for a good day's work.

[phantom power]

2. I don't think explaining the basic ideas is very hard

Yes, if you are Paul Krugman, you can back it all up with a bunch of math. But people like Krugman and Warren show every day that the underlying ideas are pretty easy to explain.

Republicans don't want to understand. The 1% doesn't want anybody else to understand either. The media likes to write he-said/she-said stories, and so they don't really care if anybody understands. The Democrats have been more interested in making sure they don't upset any Republicans than helping anybody understand. This last one might be starting to change, but I'm witholding judgement.

[coalition_unwilling]

4. It's too bad that so many voters really don't understand science and the

scientific method. If they did, our two party system would feature competition between Democrats and Social Democrats and Repigs would be mere asterisks in the electoral returns.

[Jim Lane]

3. Thanks! I've added this comeuppance to Ferguson's bio on Wikipedia.

It's in this section.