Sunday, March 3, 2013

Paul Krugman: Who should we listen to?

Like your humble blogger (see here), Paul Krugman is looking at the question of "who should we listen to?" when it comes to setting economic policy and responding to our current financial crisis.
Dean Baker is feeling dyspeptic — not for the first time — over a WaPo piece suggesting that slow growth is the new normal. Dean wonders why we should listen to people who have been wrong about everything so far.
Regular readers know I have made this point numerous times.

It is remarkable the sheer number of economists and finance professors who are willing to offer up and vigorously defend recommendations who a) did not predict the financial crisis and b) have been wrong about everything so far.
But it’s actually worse than he says.
 Indeed it is.
In the article, the case for slow growth forever is mainly made by quoting Kevin Warsh, a former Fed governor. And Warsh is indeed someone who has been wrong about everything; a bubble denier who spoke of strong capital markets before the crash, a hawk who has been warning about the risk of inflation for three years, an invoker of invisible bond vigilantes who somehow managed to describe the supposed threat from these vigilantes as somehow both a certainty and unknowable....

But wait: who is Kevin Warsh, anyway? Well, he’s a lawyer turned investment banker turned Bush appointee to the Fed turned Hoover fellow — not an economist at all. 
Now, I hate credentialism: there are plenty of fools with Ph.D.s, some fools with fancy prizes, and a fair number of first-rate economic thinkers without formal qualifications. 
Still, if someone is going to make pronouncements about how the whole nature of the business cycle has changed, you’d like some sign that somewhere in his life he has thought hard about, well, anything.
Please re-read the highlighted text as Professor Krugman makes two very important points.

First, he concedes that there are a fair number of first-rate economic thinkers without formal qualifications (individuals like Adam Smith and Walter Bagehot come immediately to mind).

Your humble blogger particularly likes this concession by Professor Krugman because it leaves open the possibility that Professor Krugman actually appreciates what I have been saying about how to address the financial crisis.

Second, Professor Krugman suggests that there needs to be a standard met before we listen to the recommendation of the speaker.

The standard I prefer is that prior to the financial meltdown in September 2008, the speaker identified why we were about to have a big problem and what could be done to moderate its impact.

Of course, this limits the number of speakers who are qualified to make policy recommendations to a handful of individuals including your humble blogger.
So why pay any attention at all to this guy on these matters? 
Great question.  Why pay any attention to a guy who failed to identify that we were going to have a big problem and what needed to be done to moderate the problem?
I guess it’s a different kind of credentialism — the Beltway notion that because somebody was once appointed to a policy position, he must be an expert. But that is, of course, ridiculous...
It is of course similar to the ridiculous notion that because someone won a Nobel Prize in Economics they are actually an expert in what policies are necessary to respond to a global bank solvency led financial crisis.

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