And Paul Krugman This Morning on the State of Macro…
From my perspective, the remarkable thing about Sargent and Lucas is that it is very, very, very hard to write down a model in which expansionary monetary policy has effects on production and employment when the economy is away from the ZLB and in which expansionary fiscal policy does not have effects on production and employment when the economy is at the ZLB. In fact, I have not figured out how it could possibly be done. I understand Prescott's aversion to expansionary fiscal policy because he does not believe in expansionary monetary policy either. I don't understand Sargent's and Lucas's aversion…
Paul Krugman: Ideology and Economics:
[H]ow many of the statements the [Chicago Business School] panel [of economic experts] was asked to address focused on the core [macroeconomic] areas?… There were a number of statements focusing on macroeconomic issues, but many of those statements were clearly outside the range of dispute among professional economists…. [S]ignificant political support for the gold standard… [is not] echoed even by economists who are very hostile to active monetary policy. By my count, in fact, there were only two statements that lay within the range of serious intra-academic dispute… quantitative easing… the effects of the Recovery Act….
What did the panel have to say about fiscal stimulus? The answers actually suggested a lot of consensus: 80 percent of the panel agreed that the Recovery Act significantly boosted output and employment, with only 5 percent disagreeing. (By the way, that’s Caroline Hoxby and Eddie Lazear). There was a lot more uncertainty over whether the Act was a good idea, but among those who did have a view, the yeas outnumbered the nays almost three to one.
So, are impressions of a bitter ideological divide over fiscal policy just wrong?…
[L]et’s go to the NBER’s EFG program. Ideally, we should go through all the members and assess their views on stimulus. For now, I’ll take a quicker approach, and focus only on highly prominent members of the program, using an objective measure of prominence – namely, possession of a Nobel Prize. There are, it turns out, five laureates among the EFG members, and three of them have expressed strong views on the effects of stimulus….
Thomas Sargent… denounced the president for, in his view, falsely implying that there was a consensus among economists of the kind the Booth experts panel data also seem to suggest:
In early 2009, I recall President Obama as having said that while there was ample disagreement among economists about the appropriate monetary policy and regulatory responses to the financial crisis, there was widespread agreement in favor of a big fiscal stimulus among the vast majority of informed economists. His advisers surely knew that was not an accurate description of the full range of professional opinion.
A stronger statement came from Edward Prescott, who simply dismissed the whole notion:
Stimulus is not part of the language of economics.
Finally, Robert Lucas made a personal attack on Christina Romer for advocating stimulus, calling it “shlock economics” and questioning her intellectual honesty. Her analysis, he asserted, was
a very naked rationalization for policies that were already, you know, decided on for other reasons.
Hmm. This doesn’t sound much like the consensus supposedly demonstrated by the [Chicago Business School] Booth panel. And do you really want to say that the divide here has nothing to do with ideology? Really?
OK, here’s how I read… Gordon and Dahl… most of what economists do is indeed fairly objective and non-ideological; business-cycle macro… is not at all like that…. Unfortunately, while business-cycle macro may not be a large part of what economists do, it’s a field that matters a lot – especially with the world still facing its worst economic crisis in three generations….
[W]hile the vast majority of economists may work on issues far removed from the question of what to do in a depression, an important part of our field’s prestige and the support it receives comes from the perception that economists do indeed have useful advice to offer in times of depression…. [I]f the perception spreads, instead, that business-cycle macro is just ideological posturing, that influential economists choose their doctrines to suit their political prejudices, and that the field not only fails to progress but sometimes actually retrogresses, this will be bad for the profession as well as the world.
