Yes, There Are Individual Economists Worth Paying Respect to. But Is Economics Worth Paying Respect to?

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Blush. To be one of fifteen good economists name-checked by Larry Summers genuinely makes my day—nay, makes my week.

But this gets into a topic I have been worrying at for a long time now. And so let me try once again to say what needs to be said, for I do have to admit that, contrary to what Larry maintains, Fareed Zakaria does have a point when he says that "events have hammered... nails into the coffin of traditional economics" and that, while the question mark at the end is important, it is time to speak of "the end of economics?". Yes, there are very many good economists worth listening to. But does economics as a whole have any claim to authority, or is it better for outsiders' first reaction to be to dismiss its claims as some combination of ideology on the one hand and obsequious toadying to political masters on the other?

Open right now on my virtual desktop, as has been true about 5% of the time over the past fourteen months, is an article forecasting the economic effects of the 2017 Trump-McConnell-Ryan tax cut by nine academic economists: Robert J. Barro, Michael J. Boskin, John Cogan, Douglas Holtz-Eakin, Glenn Hubbard, Lawrence B. Lindsey, Harvey S. Rosen, George P. Shultz and John. B. Taylor: How Tax Reform Will Lift the Economy: We believe the Republican bills could boost GDP 3% to 4% long term by reducing the cost of capital. It is, bluntly, unprofessional.

It states that the tax cut:

reducing the corporate tax rate to 20% and moving to immediate expensing of equipment and intangible investment... conventional... economic modeling suggests... would raise the level of GDP in the long run by just over 4%. If achieved over a decade, the associated increase in the annual rate of GDP growth would be about 0.4% per year. Because the House and Senate bills contemplate expensing only for five years, the increase in capital accumulation would be less, and the gain in the long-run level of GDP would be just over 3%, or 0.3% per year for a decade...

Their phrases "conventional economic modeling" and "if achieved over a decade" entail in their background a 600 billion jump in the level of investment this year then maintained for the next decade. That was never going to happen. That hasn't happened. The authors did not expect that to happen—if they had expected it, they would be very curious why their modeling approach had gone so wrong, and they are not so curious. As very sharp reporter Binyamin Appelbaum put it on twitter in a despairing cry:

Binyamin Appelbaum: I am not sure there is a defensible case for the discipline of macroeconomics if they can’t at least agree on the ground rules for evaluating tax policy. How does Harvard, for example, justify granting tenure to people who purport to work in the same discipline and publicly condemn each other as charlatans? What does it mean to produce the signatures of 100 economists in favor of a given proposition when another 100 will sign their names to the opposite statement?...

To which that snarky genius Amitabh Chanddra noted:

Amitabh Chandra: Harvard grants tenure to people who are willing to call other disciplines quackeries—so why not allow for this within disciplines too?...

And then went on to advise Binyamin to parse carefully who had and had not signed the oped. Harvard's Robert Barro was on the authorial team, but:

Remember that [Martin] Feldstein and [N. Gregory} Mankiw (both conservatives who’re more knowledgeable about policy than Barro) didn’t sign the stupid letter...

Indeed, Greg Mankiw in his "Snake Oil Economics: The Bad Math Behind Trump’s Policies" came out attacking highballed estimates of the tax cut's effects and endorsing the Congressional Budget Office's conclusion—that it would have essentially zero effect on economic growth, while redistributing a substantial amount—1.5 trillion—from the rest of us to the rich over the course of the next decade.

Unfortunately, Mankiw's attack on highball estimates did not land in December 2017, when the tax cut was moving through congress, and wen it might have done some good in the debate about public policy.

It came out, rather, a year later, in December 2018, as a review of a book by Arthur Laffer and Stephen Moore: Trumponomics: Inside the America-First Plan to Revive Our Economy.

By coincidence, I debated Steve Moore yesterday at San Francisco's Commonwealth Club. I had debated him two years ago on Trish Reagan's Fox Business show. Back in 2015, when he wanted to work for Marco Rubio, Steve was in favor of the Trans-Pacific Partnership. But by the time I debated him on Fox Business in 2016 he wanted to work for Donald Trump, who had called the TPP the second-worst trade deal in American history, and so Moore was strongly against it. Yesterday in 2019 he seemed to be for the TPP, and to regret that the U.S. had not joined it—at least he did acknowledge that the U.S. would have more leverage now in its negotiations with China over intellectual property if it were negotiating as part of the TPP group rather than, as we now are, going it alone.

So perhaps what Larry means is that smart, honest, honorable economists like the fifteen he name-checks—Janet Yellen, Raghu Rajan, Bob Shiller, Paul Krugman, the late Jim Tobin, Bill Nordhaus, Partha Dasgupta, Amartya Aspen, the late Tony Atkinson, Thomas Piketty, the late Milton Friedman, Andrei Shleifer, Dick Thaler, the late Charlie Kindleberger, a guy who really, really does not belong in that company, and tens of thousands of our colleagues have a great deal to say and add to human knowledge and the public debate, and that our tradition should not be ended but reinforced. With that I agree 100%, and more.

The problem, however, is that there is also the unprofessional How Tax Reform Will Lift the Economy: We believe the Republican bills could boost GDP 3% to 4% long term by reducing the cost of capital. It seems that every Yellen is offset by Holtz-Eakin, every Rajan by a Taylor, every Shiller by a Barro, every Krugman by a Boskin, and so on. And how is a Fareed Zakaria or a Binyamin Appelbaum supposed to disinguish those who have knowledge from those who have only ideology, or indeed from those who can and do switch their approval and disapproval of policies on and off upon changing demands from changing political masters?

Larry Summers: Has economics failed us? Hardly: "My friend Fareed Zakaria... writing... “The End of Economics?,” doubting the relevance and utility of economics and economists. Because Fareed is so thoughtful and echoes arguments that are frequently made, he deserves a considered response. Fareed ignores large bodies of economic thought, fails to recognize that economists have been the sources of most critiques of previous economic thinking, tilts at straw men and offers little alternative to economic approaches to public policy...

...Many critics of economics hold out the failure of the economics profession to predict the financial crisis as an indictment.... [But] market breaks are inherently unpredictable because one that was predicted would have already occurred as everyone moved to sell. Even so... Janet L. Yellen, Raghuram Rajan, Robert Shiller and me (2006, 2007, 2007, 2008), were concerned about risks to the financial system and the real economy in the years and months preceding the crisis. Fareed quotes Paul Krugman on the economics profession’s “blindness to the very possibility of catastrophic failures in a market economy.” Yet he quotes Krugman selectively. Krugman is indeed critical of economics but has also argued for many years that textbook macroeconomic theory could explain much of the financial crisis and its aftermath.... I have long shared Paul’s views on the excessive fetishization of mathematical elegance in macroeconomics, but this is very different from discarding textbook macro, which has stood up very well.

Fareed... attacks the economics profession for the use of GDP.... Yet all the serious efforts to move beyond GDP have their roots in research by card-carrying economists.... Jim Tobin and Bill Nordhaus... Partha Dasgupta on sustainability, Amartya Sen on... Human Development... Tony Atkinson and Thomas Piketty on inequality. It is argued that the common economic assumption that everyone is rational and optimizing is hardly valid. Of course.... Milton Friedman... talking about why people buy lottery tickets. Andrei Shleifer and I... on “noise traders” more than a quarter-century ago... speculative prices are not fully rational and reflect greed... amply clear in the writings of many others, including Kindleberger, Shiller, Thaler and DeLong.... Policy ideas like transactions taxes and “nudges” that are premised on irrationality have mostly come from economists...

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