Have Economists Sold Out?

6 December 2008 at 10:43 am Peter G. Klein 1 comment

| Peter Klein |

I’ve complained that, in the current crisis, economists are being ignored. Oliver Hart and Luigi Zingales, two economists I very much admire, argued in Wednesday’s WSJ that the problem is, rather, that economists have sold out:

This year will be remembered not just for one of the worst financial crises in American history, but also as the moment when economists abandoned their principles. There used to be a consensus that selective intervention in the economy was bad. In the last 12 months this belief has been shattered.

Practically every day the government launches a massively expensive new initiative to solve the problems that the last day’s initiative did not. It is hard to discern any principles behind these actions. The lack of a coherent strategy has increased uncertainty and undermined the public’s perception of the government’s competence and trustworthiness.

Now, Hart and Zingales imply, but don’t demonstrate, that these selective interventions are supported by the majority of economists. I think most economists oppose them, but I don’t have systematic evidence either. Still, their point is well taken. To the extent that the lay public associates the moves by Bernanke, Paulson, etc. as representing some kind of professional consensus, the reputation of economics as a scientific discipline will be forever destroyed.

Incidentally, I don’t mind Hart and Zingales’s key counter-proposal that government “should intervene only when there is a clearly identified market failure,” because I think that condition is basically impossible to meet.