There’s zero accountability in economics

By Dean Baker
July 26, 2011

By Dean Baker
The opinions expressed are his own.

Reuters invited leading economists to reply to Mark Thoma’s Op-Ed on the “great divide” in economics and will be publishing the responses. Below is Dean Baker’s reply.  Here are responses from Roger MartinAshwin Parameswaran, James HamiltonLawrence Summers, and a recap of Paul Krugman’s.

This is a very nice piece and Mark’s points are well-taken. However, as someone largely on the outside, I would go a step further. I see zero accountability for bad performance within economics either among those who write about it as academics or for those who practice it in business and government.

This is very clear as we seem doomed to spend a decade or more digging out of the wreckage of the housing bubble. Instead of trying to hold people at the Fed, in the Bush administration, at the regulatory agencies, at Fannie and Freddie accountable, the refrain “who could have known” is used as a collective alibi. Holding economists accountable for this policy failure of monumental proportions is seen as just plain vindictive.

Of course this is not the only policy failure for which economists have used the “who could have known” alibi. The collapse of the stock bubble gave us almost 4 full years of zero job growth. Still no one in policy circles saw their career suffer in any way for failing to see this bubble and the implications of its collapse.

There are many other examples where the economists in charge completely missed it (e.g. the East Asian financial crisis and the IMF response, Argentina’s crisis and the IMF response, the Mexican peso crisis). The reality is that the main policy institutions are controlled and populated by yes men (and women) who know that getting ahead means repeating what the person ahead of you in the hierarchy wants to hear. There is never any penalty as long as you are wrong with everyone else.

Economics tells us what to expect when workers need not fear sanctions or dismissal even when they don’t do they job, as long as they please their boss. We get dull, unimaginative workers who don’t do their jobs. Welcome to the world of modern economics.

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, including Plunder & Blunder: The Rise and Fall of the Bubble Economy, The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer and The United States Since 1980.

4 comments

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The economics profession needs to realize the obvious: economics is the distribution of scarce resources, and in the present world consumer demand for consumption of products is scarce, meaning that the work required of society is also scarce. Since in non-communist societies income is directly related to work done, economics has the responsibility of understanding the allocation of scarce amounts of work.

A 9.2% unemployment rate and 5 unemployed for every job vacancy does not demonstrate an acceptable understanding of this basic concept. Either there must be a resolution that should create larger amounts of “work” that do not increase the standard of living as defined by the choices of people who refrain from spending their money, or the economic profession should accept that the goals of people place an upper limit on the total amount of work society feels it is necessary to do, and should advice policymakers on ways to distribute this work fairly among the able population.

Anyone who cares about the inevitable consequences that result from the unequal distribution of work, who feels that these consequences are “destructive” or indicative of “a true moral failure“, should consider which of these choices is superior instead of contemplating the future in a fruitless morass of indecision. (MMI・mixed metaphor index)

It may be useful to point out two additional facts: corporate profits are doing quite well due to the fiscal stimulus, thank you; and further education is unlikely to reduce unemployment when 50% of young B.A. holders have a job that does not require a college degree.

Posted by Misaki | Report as abusive

7-27-11

Dear Mr.Baker:
If Congress cares so much then why do they seem to collectwhen there is no money for America even after they are gone ,and out of curiosity if you added up all the congressional salaries for congressmen/women who no longer serve yet collect the same amount of pay how much would that be? I saw the Act posted below and wondered if that would be considered could the interest alone from the salaries of retired congressman/women who collect the same amount of pay after they leave office not a retirement pay down the National Debt without raising taxes or cutting the military budget? take a look at this what do you think?

Congressional Reform Act of 2011
1. No Tenure / No Pension.
A Congressman collects a salary while in office and receives no pay when they are out of office.
2. Congress (past, present & future) participates in Social Security. All funds in the Congressional retirement fund move to the Social Security system immediately. All future funds flow into the Social Security system, and Congress participates with the American people. It may not be used for any other purpose.
3. Congress can purchase their own retirement plan, just as all Americans do.
4. Congress will no longer vote them a pay raise. Congressional pay will rise by the lower of CPI or 3%.
5. Congress loses their current health care system and participates in the same health care system as the American people.
6. Congress must equally abide by all laws they impose on the American people.
7. All contracts with past and present Congressmen are void effective 1/1/12.
The American people did not make this contract with Congressmen.
Congressmen made all these contracts for themselves. Serving in
Congress is an honor, not a career. The Founding Fathers envisioned citizen legislators, so ours should serve their term(s), then go home and back to work.

Jacquie

Posted by jwbarrows | Report as abusive

Want to know what’s wrong with the field of economics? Consider your response if I were to suggest to you that there are economic consequences of overpopulation that go far beyond a strain on resources and stress on the environment. It’s easy to predict your response, since it would be the same response of any economist. You would dismiss me as a “Malthusian” and refuse to even consider the subject. That’s what’s wrong with economics. This field of “science” instantly curls into a fetal position any time the most dominant parameter at work in economics is even mentioned. If the other sciences reacted the same way to such challenges, the world would still be flat and lie at the center of the universe with the sun rotating around it.

Posted by Pete_Murphy | Report as abusive

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