The gussied up economics of Tweedledum and Tweedledee17 January, 2016 at 19:09 | Posted in Economics | 2 Comments
“Of course, there were exceptions to these trends: a few economists challenged the assumption of rational behavior, questioned the belief that financial markets can be trusted and pointed to the long history of financial crises that had devastating economic consequences. But they were swimming against the tide, unable to make much headway against a pervasive and, in retrospect, foolish complacency.” —Paul Krugman, New York Times Magazine, September 6, 2009
While normal ecclesiastic practice places this word at the end of the prayer, on this occasion it seems right to put it up front. In two sentences, Professor Paul Krugman … has summed up the failure of an entire era in economic thought, practice, and policy discussion.
And yet, there is something odd about the role of this short paragraph in an essay of over 6,500 words. It’s a throwaway. It leads nowhere …
Krugman’s entire essay is about two groups, both deeply entrenched at (what
they believe to be) the top of academic economics. Both are deeply preoccupied
with their status and with a struggle for influence and for academic power and
prestige—against the other group. Krugman calls them “saltwater” and “freshwater” economists; they tend to call themselves “new classicals” and the “new Keynesians” — although one is not classical and the other is not Keynesian. One might speak of a “Chicago School” and an “MIT School”—after the graduate programs through which so many passed. In truth, there are no precise labels, because the differences between them are both secondary and obscure.
The two groups share a common perspective, a preference for thinking along similar lines. Krugman describes this well, as a “desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess.” Exactly so. It was in part about elegance — and in part about showing off. It was not about … the economy. It was not a discussion of problems, risks, dangers, and policies. In consequence, the failure was shared by both groups. This is the extraordinary thing. Economics was not riven by a feud between Pangloss and Cassandra. It was all a chummy conversation between Tweedledum and Tweedledee. And if you didn’t think either Tweedle was worth much — well then, you weren’t really an economist, were you?
Professor Krugman contends that Tweedledum and Tweedledee “mistook beauty for truth.” The beauty in question was the “vision of capitalism as a perfect or nearly perfect system.” To be sure, the accusation that a scientist — let alone an entire science — was seduced by beauty over truth is fairly damaging. But it’s worth asking, what exactly was beautiful about this idea? Krugman doesn’t quite say. He does note that the mathematics used to describe the alleged perfection was “impressive-looking” — ”gussied up” as he says, “with fancy equations.” It’s a telling choice of words. “Impressive-looking”? “Gussied up”? These are not terms normally used to describe the Venus de Milo.