Mankiw: Defer to the Philosopher-Kings

27 September 2008 at 7:57 am Peter G. Klein 6 comments

| Peter Klein |

One of the most disappointing economist responses to the proposed bailout is Greg Mankiw’s. While not exactly endorsing the Paulson-Bernanke plan itself, Greg supports the process through which it emerged. His argument, essentially, is this: Paulson and Bernanke are very smart and have access to better information than the rest of us, so we should stop complaining and go along with whatever they propose.

I find this stunningly naive, for four reasons:

1. It ignores differences in theoretical frameworks or models. No doubt Karl Marx, John Maynard Keynes, Oskar Lange, Paul Samuelson, and Joseph Stiglitz were or are highly intelligent people. Do we have to accept all their policy conclusions? Surely intelligent specialists can come to different conclusions not only because they have access to different information (the Friedmanite view), but because they have different understandings of how the world works. (This is especially true when long-run, rule-utilitarian consequences are at stake.)

2. It ignores the distinction between theoretical and applied economics. Even if people agree on theoretical questions, they may disagree on the application of theory to specific historical situations, which is a matter of judgment, not intelligence.

3. It ignores private interests. Paulson and Bernanke are not disinterested, Platonic philosopher-kings pursing the common good. Presumably they are pursuing private interests, just like every other political actor. Has Greg never heard of public choice?

4. It ignores concerns other than economic efficiency. Economists, like everyone else, have normative opinions. Some may oppose the bailout not on utilitarian grounds, but because they think giving taxpayer dollars to failing enterprises is immoral, regardless of possible contagion effects.

Entry filed under: - Klein -, Bailout / Financial Crisis, Classical Liberalism, Methods/Methodology/Theory of Science, Public Policy / Political Economy. Tags: Bailout / Financial Crisis, paulson.

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6 Comments Add your own

1. Mark | 27 September 2008 at 9:22 am

I, too, am somewhat shocked by the complete ignorance among the profession of the public choice aspect of this. But then again, when your craft is honed in schools that view the profession as technocratic and omniscient, it may not be so surprising.

Put $1 worth of sugar on the ground and you’ll attract plenty of ants and roaches. But $700 billion?!?!?
2. Kiss-ass economics | The Libertarians | 27 September 2008 at 9:56 am

[…] and Markets takes economist-to-the-GOP-stars Greg Mankiw to task for arguing Congress should defer to the supposed genius of messers Paulson and Bernanke: […]
3. Mike | 28 September 2008 at 11:44 am

“If I were a member of Congress, I would sit down with Ben, privately, to get his candid view. If he thinks this is the right thing to do, I would put my qualms aside and follow his advice.”

OK. That’s it. Mankiw is officially removed from my list of Economists Worth Listening To.
4. spostrel | 29 September 2008 at 5:51 pm

Greg has expressed considerable discomfort with the B-P plan, but he knows that when credible, informed people start taliking about a total collapse of lending and Depression-level dislocation you have to think about those claims. I am also opposed to the B-P plan (although I’m sure Peter wouldn’t be too enthused about what I would prefer to do instead). But no one is going to take anyone seriously who doesn’t think the equivalent of a massive bank run is something to worry about.

As to Peter’s four points.

1. Mankiw is a Keynesian in his view of the business cycle. So is Bernanke. So he finds Bernanke a credible interpreter of the data to which Bernanke has preferential access.

2. Mankiw thinks Bernanke has good practical judgment and more specific information than he does.

3. Mankiw has expressed unease at Paulson’s motives and the whole Wall Street incestuousness of this intervention, but he (I believe correctly) assesses Bernanke’s motives as avoiding a financial collapase that will rerun of the Depression. That is Bernanke’s special area of expertise and something we would expect him to be especially concerned about.

4. Calling avoidance of a great crash a concern with “efficiency” is a bloodless way of talking about avoiding widespread misery. These aren’t Harberger triangles being discussed. I’m happy to let all these Wall Street guys go under if they screwed up, but I’m not so eager to punish them that I’m willing to take everybody else down with them.

4.
5. Peter Klein | 29 September 2008 at 6:12 pm

Steve, on #1, the point isn’t whether Mankiw shares Bernanke’s theoretical framework, but whether the rest of us do. Greg must think we’re all New Keynesians now, as Tricky Dick might have said. But we’re not.

On #3, that’s exactly my point. Greg dismisses public-choice concerns as unworthy of comment. That he and Ben are pals is about as relevant as Bush getting a warm fuzzy when he looks into Putin’s eyes.
6. Rafe Champion | 1 October 2008 at 1:16 am

Has anyone explained why everyone will go down because some assets have been over-valued as the parcel was passed from one player to the next and a some of them have been caught holding the parcel when the music stopped?