Posted: May 04, 2009
What good is BusinessWeek anyway?
Consensus on economic thought is a moot pointJeff Thredgold
For those who missed it, the April 27 cover story of BusinessWeek was entitled “What Good Are Economists Anyway?”
Perhaps the magazine’s editors simply got tired of trashing the American economy week after week after week … turnabout is fair play.
The premise to the story is that economists mostly failed to predict the worst economic crisis since the 1930s. Now they can’t agree how to solve it. No argument here. As we have noted before, the consensus of forecasting economists a year ago was for weaker, but still positive, U.S. economic growth during 2009.
The article goes on to give a harsh and sometimes reasonable assessment of the challenges and pitfalls of economic forecasting. As we have also noted frequently, economists provide forecasts of the future not because we know what is going to happen.
We provide forecasts because we are asked to. There’s a big difference.
The article focuses in part on the debate between different camps of economists as to the role of government in the current economic and financial crisis. The Keynesian approach, named after British economist John Maynard Keynes (pronounced Canes, 1883-1946) is aggressively being embraced by the current Administration. The Keynes approach focuses on fiscal stimulus … massive government spending … as the means to boost demand and re-employ people.
The magazine notes that last January then-President-elect Obama stated, “There is no disagreement that we need action by our government, a recovery plan that will help to jump-start the economy.” Not long after, some 250 conservative economists,in an open letter published in major newspapers, wrote: “With all due respect Mr. President, that is not true.”
Many economists of the past 40 years have focused more on the role of the Federal Reserve in using monetary policy to smooth economic gyrations. This Monetarist view, whose principal advocate was Milton Friedman (1912-2006), was embraced by former Federal Reserve Chairman Alan Greenspan, who served as Chair from 1987 to early 2006. This approach had some success, with but two short and mild U.S. recessions between late 1982 and late 2007, a period
of 25 years … then all hell broke loose.
During his latter years at the Fed, Greenspan denied that a national housing bubble was even possible, since housing was not a single national market. He also argued that financial markets would effectively self-regulate and brushed off dangers of Wall Street concoctions such as derivatives…
… only last year did Greenspan concede that he was wrong.
There will be no major consensus regarding economic thought in coming years. The U.S. economy continues to provide glimpses of stabilization and impending improvement, led by the stock market. The consensus of forecasting economists still sees U.S. economic growth turning positive before the end of 2009. When a clear U.S. economic recovery is in place, the Keynesians (including the current Administration) will take credit for leading the return to growth. The critics of massive government spending will suggest the resilient U.S. economy recovered despite massive government spending. These critics will also point to the long-term peril of continuing enormous deficit spending. The debate about the role and value of economists will continue … that much is clear. To quote a friend of mine, Todd Zagorec, it’s high time economics was given the respect and status it deserves alongside all the other occult sciences.