Why Am I Defending Economists -- Especially THESE Economists?

by Neil H. Buchanan

Frequent readers of Dorf on Law have seen ample evidence that I am hostile to the economics profession as it is currently constituted.  Although I often find myself in agreement with those on the left side of the current divide among economists, I have made clear my discomfort with the norms (both intellectual and professional) of the field as practiced in almost all economics departments -- in the U.S. and around the world.  I am certainly a "dissenting economist."

On the policy front, I have critiqued economists who advise both Republicans and Democrats, though not in equal measure.  Moreover, I spent quite a bit of time two years ago describing how "orthodox left" economists such as Paul Krugman end up (perhaps inadvertently, but still quite consistently) maintaining the professional status quo by siding with conservative economists against "heterodox left" economists.  (My final post on that subject can be found here, with a link in the first paragraph that leads to previous posts in that series.)

There is no doubt, therefore, that I find much to criticize in the world of credentialed economists.  Even so, just because they are guilty of so much does not mean that they are guilty of everything.  I thus found myself quite annoyed a few weeks ago, when a guest columnist in The Washington Post blithely offered some of the most baseless attacks on economists that I have seen in some time.  The column, "This is what economists don’t understand about the euro crisis – or the U.S. dollar," was written by a prominent political scientist whose record certainly suggests that she possesses an impressive knowledge of European politics.  Even so, the author's argument ultimately boils down to something like this: "There are economists with whom I disagree, and they are wrong because they only think about economists and not politics, which is what I know."

In the opening sentence of the piece, prominent U.S. economists are accused of almost enjoying the Euro/Greek crisis.  They are, rather amazingly, said to be offering critiques with "more than a hint of schadenfreude."  In an attempt to be bipartisan, the author then slams Greg Mankiw (conservative), Paul Krugman (liberal), and Martin Feldstein (conservative) for being variously "smarmy," "relentlessly excoriating," and "condescending."  What is notable, however, is that the author never actually argues that these economists are wrong that the crisis is (in Feldstein's words) "the inevitable consequence of imposing a single currency on a very heterogeneous group of countries."  Instead, "[w]hat this commentary gets wrong, however, is that single currencies are never the product of debates about optimal economic solutions."

This does not even rise to the level of a cheap shot.  If ever there were three economists who cannot be accused of political naivete or ignorance, it is those three.  Yes, Mankiw likes to write dumbed-down pieces for The New York Times in which he acts as if (an extreme conservative version of) Econ 101 is really all one needs to know to run the world.  In fact, I have a folder on my hard drive called "Mankiw Follies," in which I keep a running list of such nonsense.  My dearest hope is that I will never have enough time in my schedule to go back and read all of them, much less to write the article forming in my mind that would explain their aggregated madness.

But the arguments to which Mankiw, Krugman, and Feldstein refer are not international monetary versions of "assume a can opener."  The argument was never about "optimal economic conditions" but about the very predictable results of adopting a currency union when both economic and political conditions were far from optimal.  After a long -- Dare I say smarmy and condescending? -- summary of how the U.S. achieved a common currency, the columnist finally asserts that economists do not understand "a broader reality": "[M]oney has always and everywhere been part of broader projects of political consolidation. This means that it has always been highly contentious."  The hell you say!

Finally, we get to the real argument, such as it is: "European leaders weren’t stupid or self indulgent when they decided to move ahead with the euro, without fiscal union or strong Europe-level democracy. They just cared more about politics and international security than economics."  What the columnist should have understood is that Krugman et al. are saying something like this (with which I obviously agree): "European leaders were stupid and self indulgent when they decided to move ahead with the euro, without fiscal union or strong Europe-level democracy, because they just cared more about politics and international security than economics and because they thought that they could wish the economic realities away."

As an analogy, there really are true-believer economists who insist that any attempt to mess with "the invisible hand" will lead to ruin.  Minimum wages?  Horrors!  These economists are wrong, of course, but that does not mean that there are no economic constraints on what one can achieve via increases in the minimum wage.  And tarring every criticism of the minimum wage by saying that "it's not stupid and self-indulgent to think that there are more important things than economic efficiency" is simply incoherent.  I want to increase the minimum wage, but I know that it would be insane to try to set it at, say, $1000 per hour.

Finally, consider this admission of the level of wishful thinking: "When [European leaders] did think about economics, they hoped that a strong euro, anchored in an independent European Central Bank located in Frankfurt and built on a commitment to protecting the stability of the currency, would help resolve the problems of currency depreciation, spiraling inflation and economic instability that came with the weak currencies of the 'Club Med' countries to the south of Europe."  I have no doubt that they did so hope.  And other people at the time said that those hopes were not based in reality, that the result of moving too fast would be to increase instability and risk undoing all of the many important accomplishments of the project to integrate Europe.

"History does not unfold as a series of neat and sterile decisions made by people rationally trying to create economically optimal policies."  I am not saying that there are no economists who would disagree with this statement.  I am saying, however, that even the prominent economists whom I have harshly criticized over the years for being far too insular in their thinking are not that insular.  Many economists really are politically ignorant (and arrogantly so).  In this case, however, being truly politically savvy should have suggested that it was the European leaders who had "neat and sterile" little stories about how the Eurozone would work.

The Eurozone might stay together, or it might not.  The history of U.S. fiscal integration is interesting in its own right, and it suggests that monetary history is not a smooth series of events.  But so what?  No serious analysis claims otherwise.  People often overuse the claim that their opponents have merely built a straw-man argument.  In this case, that claim is true.  Mankiw surely is smarmy, but the economists who doubted that Europe was ready for the euro were not political naifs.  Apparently, European leaders were so convinced of their own political brilliance that they thought that they could make things happen simply because it would be nice if those things could happen.  That is "leadership" of the worst kind, and Europeans have paid a steep price for such arrogance.  It might get worse.