An old man complains that things are getting worse
Here’s Bloomberg:
Former Governor of the Bank of England Mervyn King says the central bank hasn’t been covering itself in glory of late, and that’s partly thanks to it falling victim to groupthink. The economics profession is jammed with brilliant people, he argues on this week’s episode of Merryn Talks Money, but unfortunately, they’ve all been taught the same thing: money has absolutely nothing to do with inflation.
Believing that was a “big mistake,” King says it’s brought the UK economy to where it is: inflation at multi-decade highs and the BOE having its credibility questioned.
Consider the following two claims by the old man who writes this blog:
1. Since 2008, politics has sharply deteriorated throughout much of the world.
2. Since 2008, the economics profession has sharply deteriorated.
On the right, politics has become increasingly statist, authoritarian and nationalistic. On the left, politics has become more obsessed with issues of race and gender, less tolerant of free speech and more statist.
The economics profession has reverted to once discredited pre-neoliberal ideas on antitrust, budget deficits, monetary policy, industrial policy, trade policy, etc.
Here’s my question for commenters: Are these two negative trends related?
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23. July 2023 at 22:34
Here’s my old man question: I’m not even in Scott’s field, and I’ve ordered and will read this book: “The Dreadful Monster and its Poor Relations: Taxing, Spending and the United Kingdom, 1707-2021, by Julian Hoppit”.
Is Sumner also planning or has read this book, given his following of England? I doubt it. I recall once mentioning the leader in exposing the scientific replication crisis (where up to 60% of papers cannot be repeated), Dr. Ioannidis, “John Ioannidis’s 2005 article “Why Most Published Research Findings Are False”, and Sumner was ignorant of this name. Wow. That’s when I understood that Sumner is like those Austrian economists who don’t reply on empirical data but instead do bogus “thought experiments” in their mind. That’s why they think they are always right, no matter what the data say.
24. July 2023 at 00:13
Scott,
I really don’t know. Call it “The return of stupid”? The political decline has been fuelled by world wide populism and reduced elite influence. The economist profession deterioration is a within-elite phenomenon. Or perhaps a generational change of guard? Are both symptoms of simple changes in fashion, where neoliberalism was only accidentally popular, not causally because it was properly understood, and democracies only accidentally did the right thing for a short while because the voters’ perceptions accidentally aligned with good policies in the same way of the stopped clock being right twice a day?
But you are spot on. And it is world wide. Maybe there’s truth to the endocrine-disruptors-in-the-air stories…
24. July 2023 at 05:29
Isn’t this just like the 1930s – macroeconomic failure begets retrograde political and economic ideas? So those two negative things are related, but perhaps not causally related.
24. July 2023 at 06:52
Isn’t the answer “of course they are related” and the reason why this is so is that one important measure of success for economists is having their work influence public policy. The desire for relevance in public policy leads economists into areas most likley to be accepted by policy makers. For example, these are the words of Clifford Winston debating with David Henderson at Econlog recently:
“Generally, policies with the primary intent of redistributing income instead of improving efficiency are taken by economists as given, meaning democracies support them or reject them at the ballot box. Economists assess those policies from an efficiency perspective on whether they are least cost solutions to achieving the social goals they are trying to achieve by redistributing income.”
So, if Government policy makers are demanding industrial policy or trade restrictions then it really shouldn’t suprise anyone that you can find economists working in these areas.
I think the more important question is how do you structure incentives for economists so that they are primarily interested in the truth irrespective of political trends.
24. July 2023 at 07:41
I think they are related. Trend 1 stems from dissatisfaction with the neoliberal order from large swathes of the populations of Western democracies. Trend 2 stems from economists observing the dissatisfaction, attempting to empathize with it and keep up with the political zeitgeist. I guess there’s just a sense that the fruits of the neoliberal order are not going to be good enough for the working classes, so something different has to be done. That something is taking many different forms, most of them regrettable.
24. July 2023 at 08:47
mbka and Rajat, Good points.
Parker and Danny, But are economists being pressured to believe that inflation has nothing to do with money? It seems to me that economists are sincerely misguided.
Everyone, For some reason the comment section isn’t working well. Each comment must now be approved. Not sure why.
24. July 2023 at 09:30
I think you’re being too hard on your profession. The biggest mistakes were made in the 2006-2010 period and I think those lessons were absorbed by current Fed members and their equivalents in the EU.
Concurrently, I don’t think you’re being hard enough of political leaders who have managed to find (or manufacture) all sorts of crackpots to support their agendas. Erdogan, BitCoiners, MMTers, etc…
If you surveyed most American economists I think you’d find little support for fringe theories.
24. July 2023 at 12:52
Internet + any crazy ideology = bad situation
The crazy ideology that explains most of what we’re talking about in this case is anti-neoliberalism. Those with the true faith are often, by definition, sincerely misguided.
24. July 2023 at 13:11
Liquidity trap after GFC. We entered a world where a lot of things go topsy turvy. Protectionism can raise GDP. Statism can create spending through public works. I think the monetarists were right that you can escape the liquidity trap in time, but it also gave an opportunity for political views that don’t work well over the long term to have their day in the sun and suddenly seem to ‘make sense.’
24. July 2023 at 19:08
Scott:
many phenomena producing constructive interference:
1) dramatic leftward slide of academia (producing lefy-conomists)
2) decline of academic standards and emphasis on self-esteem over knowledge
3) on the ground left-wing policies are failing miserably nationwide (e.g., homelessness in liberal cities); rather than admit failure (self esteem before knowledge) the intellectually disabled products of modern universities simply demand a more extreme version of the same. They already tried their “self-esteem-approved solution” and it failed, so obviously the only remaining possibility is that they didn’t go far enough. Here we see the thinking behind CRT: since CRTs proponents reject all the well established rational explanations for why certain minorities lag in wealth (education, single parenthood, teen parenthood), then what other solution is there except racism?
4) Hansamplification: James Hansen started the screaming crank-prophet movement, which recognizes anything it says as the absolute truth and beyond rational consideration. The “Truth to Power” meme that grew up around Hansen spawned a belief in the left that concessions are unacceptable. They speak “Truth To Power” and thus whatever they do is justified.
The authoritarian response of the right is a reaction to the right being caught totally off guard by the popular explosion of leftist belief that emerged via “obamaism”. Also they’ve never formulated an intellectually sound response to the increasingly wacko environmental movement – all they can manage is a pathetic screaming denunciation of climate change. Last but not least they seem to be worried that they can’t win the debate on a popular basis – IMO because they’ve failed to formulate a coherent philosophy and platform that resonates with a broader cross-section of people – so they resort to authoritarianism to control what they fear they can’t win by debate.
Do you remember when Romney was caught on hot-mic saying something to the effect that “people don’t work”, and the lefty press made a huge deal about it? This sentiment is only a big deal because it’s a *secret*. Republicans should embrace it openly and back it up with numbers and data. Put it out there in the public for real debate. A lot of hard working people feel the same, even people who have liberal leanings. What they need is something sound to hang their hats on.
It’s complicated. But those are some things that I think contribute to the situation.
24. July 2023 at 19:52
Expanding on the right:
I’m struggling to clarify what the problem is but perhaps an example will be helpful:
In SE Alaska, there is a vast Cu-Mo-Au-Ag deposit. The project to develop it is known as the “Pebble Mine” project. Quoting wikipedia the deposit has:
“56.9 billion pounds of copper, 70.6 million troy ounces of gold, 3.4 billion pounds of molybdenum and 344 million ounces of silver.”
At the current price above $1900, the gold alone is worth $150B. The project would employ 1000+ ppl for 25yr. The primary objection against it is that it’s near Bristol Bay, which has a $1.5B profit annual salmon fishery.
The Biden admin rejected the permits for the project.
*breath*
There are several liberal vs. conservative themes running through this project.
First, let’s just look at the simple economic math: Wikipedia reports only the profitable value of the salmon fishery, not its total value, as I use with the metals. But even if the salmon fishery has a measly 5% margin, the gold alone in Pebble is worth 5+ times the salmon fishery!!!! And that’s the currently dilineated resources and only the gold!! The copper is another $150B and I wont’ even bother with the Ag and MO, we’re so far ahead of the game.
why in the hell would any rational person be against developing this deposit? From a dollar standpoint – or from a “wealth of the nation” standpoint, not developing it is ***INSANE***. We could lose the entire Bristol Bay fishery and all be much better off. But – here’s the catch – we don’t have to lose **any** of the fishery! We just need to put the oversite in place that protect it. For God’s sake we put a man on the effing moon in 1970 with a freakin’ 128K memory computer!! How is it possible we can’t mine Pebble and not ruin the fish run????
But that’s all of it.
We’re in a housing crisis – as reflected by millions of homeless people around the country. Copper is an important constituent of housing.
We’re in a (supposed) climate crisis. Almost every electric product that replaces an ICE product requires substantial copper. Developing Pebble would contribute to relative reduction in housing prices and make all kinds of electric items relatively less expensive to produce.
WTF???
And that’s still not all of it:
We’re also in a kind of jobs crisis: lack of high paying jobs for low-education labor. What could be better than a mine to solve this problem? If Pebble doesn’t produce the copper, it will almost certainly be produced in Mongolia or Chile or Africa or wherever else. Then not only are we giving away those jobs, we’re giving away somethign Democrats love dearly: the taxes that are paid by the companies and the workers.
This project encapsulates the boiling Republican frustration with irrational leftism. it’s a win for the US in every single dimension, except that it would piss off the fanatic environmentalists who support democrats.
Yet, at least in my estimation, the Republicans are doing a **horrible job** of bringing these kinds of absolutely stupid policy contradictions to into view of the public. I don’t know why!! They seem incapable of sensibly outlining this problem and presenting it to the public so the public can see what kind of stupidity is driving these issues.
And this even as WA gov Jay Inslee is claiming the “climate is screaming”!!! How does he expect to fix that problem without copper??? (even more comical, despite teh supposed “screaming” of the the climate, Inslee, Murray, Cantwell and the rest of the WA-state Prog crowd want to tear down the Snake River hydroelectric dams to save fish!!!!)
The left has become a cacophony of nutcases with no rational philosophy whatsoever, yet the right is unable to express a sound alternative!
24. July 2023 at 20:06
Sorry, just a couple last thoughts:
The Ag/Mo in Pebble is worth about another $100B. Again this is just the current estimated reserve. Chances are good that as mining progresses additional reserves will be defined.
WA state’s previous long time Democratic Senators, Scoop Jackson and Wareen Magnuson, would have loved the Pebble Mine. So would Wa’s former Dem house whip Tom Foley. Surely the project will generate a lot of activity at Seattle’s ports and throughout WA supplying it! Jobs jobs jobs! So compared to these traditional centrist Democrats, modern Dems like Inslee, Murray and Cantwell are on the lunatic fringe. They’re operating in some kind of Enviro-La-La land where the rules of economics are suspended in favor of (my beloved meme).
24. July 2023 at 20:12
David, Lots of ideas that used to be fringe are now mainstream (liquidity traps, industrial policies, etc.)
Kangaroo, You are too focused on politics. The GOP has deteriorated just as much as the Dems. They’ve become anti-immigrant, protectionist, big budget deficit NIMBYs
25. July 2023 at 05:27
There is nothing authoritarian about Trump and Kennedy Jr. advocating for free speech, fair elections, decentralization, borders that protect peoples inalienable rights, concerns over digital currency controlled by a centralized actor, advocating trade policies that protect American workers, or advocating for separation from transnational and supranational organizations where unelected apparatchiks impose themselves upon us like Stalin’s thugs. None of those concepts are pre-enlightenment, hard right, or totalitarian. They are principles obtained through two thousands years of human progress, erected, beautifully and articulately, in the Federalist Papers which was the apex of the enlightenment.
Moreover, Thomas Jefferson, in his letters, advocated for Tariffs, not because he was a pre-enlightenment mercantilist thug, but because he was anti-mercantilist. The classicals knew that big “trusts” as they called them, would seek favors, and they would propagandize and market these favors to the general public as so-called “trade agreements” and “economic zones”… and lo and behold the clauses in these “trade agreements” would monopolize and oligopolize industry because they would allow certain companies to play by a different set of rules. He also knew that these trusts could become so large, and so integrated with government, that these companies and governments would unite to threaten the very substructure of freedom. The other issue, and Jefferson did not say this, but I will say it. Permitting foreign investment unabated, threatens culture and tradition, because companies owned by foreigners do not always share American values. Incidentally, this is not just an American problem. If you go to any southeast Asian country, the first thing people say is how sick and tired they are of working for some foreigner. Now those on the left hate the words culture and tradition, and nation and borders, but anyone with any sensibility understands that tradition and culture produce harmony. In other words, people get along with each other when they share the same values. If the values differ substantially, then disharmony increases to the point of violence.
The left on the other hand is showing their cards, and the cards are not just statist, but totalitarian, and in the same mold as the CCP.
25. July 2023 at 06:42
“ On the right, politics has become increasingly statist, authoritarian and nationalistic. On the left, politics has become more obsessed with issues of race and gender, less tolerant of free speech and more statist.”
This is absolutely right. The GOP and the Dems have deteriorated, thats for sure. And it does seem to be a global phenomena.
That said, it seems to be the case they are just following the crowd down the rabbit hole. Very few people are able to see any problems with their team. It’s always 100% the other side.
25. July 2023 at 07:22
“But are economists being pressured to believe that inflation has nothing to do with money?”
I’m having trouble seeing where economists are saying inflation has nothing to do with money. There’s argument about how agressive Fed policy should be but, is anyone really arguing that monetary policy isn’t relevant?
25. July 2023 at 09:20
It’s called the political economy for a reason. It’s fundamental that the deterioration of ethics and morals is economic.
Crowding out (public sector borrowing vs. private sector borrowing) is perverse (“reduces the annual growth rate in real per capita GDP by 0.05% to 0.1% per year”).
Savings isn’t synonymous with the money supply.
25. July 2023 at 09:41
Parker, I think he is alluding to the view that the quantity of money is not important, just interest rates.
25. July 2023 at 09:44
re: “The economics profession is jammed with brilliant people”
That’s preposterous. A good economist is a good market trader. There aren’t any books on market wizards who were Ph.Ds.
25. July 2023 at 10:39
I think they are related.
Politics has deteriorated because of the successful rise of China, the Great Recession, the wars, and the steady growth of the entitlement and regulatory state seemingly without dire consequence.
The rise of authoritarian China brought questions about the superiority of a liberal system of government. The Great Recession brought questions about a free-market economic system (many blamed the Great Recession on under-regulation). The wars brought into question our political leaders’ judgment and America’s leadership.
Regarding the entitlement state, we passed the threshold where more than half our population receives more in transfer payments than they pay in taxes and yet we did not see economic collapse. Regarding the regulatory state, regulations have continued to increase and intrude more into our lives, reaching an apogee during COVID.
Now look at your examples: “The economics profession has reverted to once discredited pre-neoliberal ideas on antitrust, budget deficits, monetary policy, industrial policy, trade policy, etc.”
Budget deficits: How do you convince people that deficits matter when they don’t seem to.
Monetary policy: Until the recent bout of inflation, it seemed like no amount of monetary stimulus had any negative consequences (hence the rise of the kooky MMT). And, in the other direction, the NGDP undershoot during the Great Recession, went unnoticed because so many plausibly blamed it on poor regulation.
Industrial Policy: see the Rise of China above.
Trade Policy: see the Rise of China above.
Antitrust: see the causes of the Great Recession above.
The voices of the Peter Navarro’s and Robert Reich’s of the world are able to gain more favor in a political environment such as this. Navarro speaks to the fears about China’s rise. Reich speaks to those who believe the government can resolve economic hardship.
And those who speak from the neo-liberal consensus can no longer point to the success of the system built on their ideas with the same credibility, even if the problems plaguing that system were due to abandonment of those principles. Either the bills haven’t come due to prove them right as in the case of budget deficits or the bill came due but was sent to the wrong customer in the case of the Great Recession.
25. July 2023 at 10:49
Ricardo’s model assumes there was one global standard where everyone plays by the same rules.
It’s not reality. He was also wrong about the labor theory of value, so it wouldn’t be the first time he was proven incorrect.
I think a responsible trade policy is one where we trade with countries who really want free trade. That means they don’t try to steal our intellectual property, don’t erect barriers to entry, or use forced labor to make their products. That’s theft, not trade.
Everyone wants to access the 1B Chinese market, and that’s why they hand over their IP, but it’s not good for us. These companies are investing in China, increasing the number of Chinese jobs, while destroying our jobs.
That doesn’t make any sense.
Ricardo never accounted for a country that artificially reduces its currency to keep wages low. Lots of variables he didn’t explore.
26. July 2023 at 10:09
Carl, You said:
“The rise of authoritarian China brought questions about the superiority of a liberal system of government.”
Yes, in people who don’t understand that the US is 4 times richer than China, or that more liberal East Asian economies are much richer.
“regulatory state seemingly without dire consequence.”
Really? How have regulations restricting building impacted housing affordability? How have medical regulations impacted real wages?
26. July 2023 at 11:43
Scott,
Just to be clear, I’m not talking about my beliefs. I’m talking about beliefs of, for example, influential think tanks. If I go to Heritage and look up China, I get a lot of articles warning that America is losing its dominance in the economic and military realms versus China. The concern is not about current wealth levels.
If I go to EPI and look up regulations I read stuff like this: https://www.epi.org/publication/deregulation-year-in-review/
I was hard-pressed to find anything said against regulation on that site.
26. July 2023 at 13:12
Carl, Yes, i agree that their are a lot of misguided think tanks out there.