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Economists, John Maynard Keynes wrote in 1931, should be more like dentists—"to get themselves thought of as humble, competent people." It's a goal more urgent than ever today, since economists, especially those who purport to understand the workings of the macroeconomy, have been kicked in the teeth during the past few years. Their intricate mathematical models largely failed to predict the 2008 financial crisis. Some economists have been assailed for having financial ties to the big banks that did so much to precipitate the crisis. And now they are divided about how to get out of the slump and worried that U.S. employment won't return to normal for years.
No wonder the annual meeting of the American Economic Assn. (AEA), held on Jan. 6-9 in Denver, was a scene of much soul-searching and little mirth. Keynes didn't speak to this point, but we can stipulate that dentists have more fun. The American Dental Assn.'s annual meeting is in Las Vegas; the AEA's top entertainer in Denver was "stand-up economist" Yoram Bauman, who teaches at the University of Washington and favors wisecracks about marginal utility.
As macroeconomists grope for new ideas to reinvigorate the profession, they're looking past the one-liners and harking back to the old masters. In Denver, Stanford University economist Robert E. Hall, concluding his one-year term as president of the AEA, introduced an economic model that leans heavily on Keynes' Depression-era insights about the ineffectiveness of central banks when interest rates hit zero. (The federal funds rate target has been stuck at 0 percent to 0.25 percent for two years.) Meanwhile, the liberal billionaire investor George Soros hosted a talk last year on the economic theories of Keynes' archrival, Friedrich Hayek (1899-1992), a hero of the Tea Party movement. The profession is in such tumult that some thinkers are being to drawn to their ideological opposites.
The ferment calls to mind Thomas Kuhn's 1962 book The Structure of Scientific Revolutions, which posits that when one scientific paradigm breaks down and another hasn't yet taken its place, all hell breaks loose. In Denver, it was clear that the decades-long project to weave different strands of macroeconomic thought into a "neoclassical synthesis" had run into an intellectual cul-de-sac. But it was far from clear what new approach might emerge to replace it.
Economists can't even agree on whether they disagree. Hall, who also chairs the committee that dates the beginnings and ends of recessions, insists that disputes within the profession are a media concoction. "Modern macro doesn't have schools [of thought] anymore," he said at another session. "Only the press thinks it's interesting to talk about schools." Yet doors away, other economists were enthusiastically poking holes in the so-called consensus from the perspective of Minskyites, Austrians, Institutionalists, and on and on. John Quiggin of Australia's University of Queensland argued that the economic ideas most discredited by the crisis were those of the "sensible center of the profession"—such as Federal Reserve Chairman Ben Bernanke's mistaken assertion before becoming chairman that the U.S. economy had achieved an enduring "Great Moderation."
Bottom line: No consensus. But no dentist-like humility, either. "If you ask 1,000 economists what's wrong with economics," says Scott Sumner of Bentley University in Massachusetts, "they'll all tell you the same thing—which is that other economists don't believe what they believe." Benjamin M. Friedman, a Harvard University economist, said that many economists seem to be returning to theories that have been discredited. Says Friedman: "A large amount of the old complacency has crept back."
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