As my readers may know my position has been that graciously suggesting that economists who got the crisis wrong were making technical errors which could easily be corrected was the fastest way to bring everyone back into the fold.
I thought Paul was hampering that process with his war on “Freshwater Economics.” I thought he was creating a tribal marker that had people denouncing ideas rather than giving them a fair reading.
A few things have worked to change my mind on this
First, some unfortunate backsliding by folks who had previously admitted their errors.
Second, the extremely eye-opening discussion of micro-foundations that went over the blogs. I would have thought some position to be caricatures of what economists thought until I saw some economists actually endorsing them.
Third, with all that building Paul’s speech did tip me over the line.
Deliberate policy to offset the crash in private spending has been largely absent.
And I blame economists, who were incoherent in our hour of need. Far from contributing useful guidance, many members of my profession threw up dust, fostered confusion, and actually degraded the quality of the discussion. And this mattered. The political scientist Henry Farrell has carefully studied policy responses in the crisis, and has found that the near-consensus of economists that the banks must be rescued, and the semi-consensus in favor of stimulus in the initial months (mainly because the freshwater economists were caught by surprise, and took time to mobilize) was crucial in driving initial policy. The profession’s descent into uninformed quarreling undid all that, and left us where we are today.
And this is a terrible thing for those who want to think of economics as useful. This kind of situation is what we’re here for. In normal times, when things are going pretty well, the world can function reasonably well without professional economic advice. It’s in times of crisis, when practical experience suddenly proves useless and events are beyond anyone’s normal experience, that we need professors with their models to light the path forward. And when the moment came, we failed.
I was wrong. He was right.
I apologize for that.