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Old 31 May 2014, 05:56 PM
Johnny Slick's Avatar
Johnny Slick Johnny Slick is offline
Join Date: 13 February 2003
Location: Phoenix, AZ
Posts: 11,628

Sure, we're bad at seeing recessions in advance. I'd say that's at least as much due to bad zombie economics ideas being in vogue over the pat 30 years as anything else, but there is a deeper, worse idea at the core: a lot of freshwater economists argue that there is no such thing as recessions. That isn't to say that economies never contract 2 quarters in a row, it's that when this happens it's as close to random as anything can be, because if it wasn't random we'd have been better able to predict them by now.

I'm sorry, but this is just dumb, kind of like saying that there are no hurricanes because we can't predict when and where they'll occur 6 months in advance. In a sense, it's even worse than that, because weather forecasting is a whole lot better studied (and a whole whole lot less politicized) than macroeconomics. There is a class of economists who insist that they have developed the ideal, Platonic model for how markets work and any deviation from this is a failure of reality, not a failure of the model. This is poisonous thinking that's worse than merely being wrong.

What I think these folks need to do is understand that even though we can't predict recessions now, that doesn't mean that they don't occur, and that once we accept that they do in fact occur we can seek to study how to mitigate their effects. I think a lot of saltwater economists - Paul Krugman and Brad DeLong, for instance - have already begun to ask these questions and as a result their responses - spending in the face of recession, for example, and cutting back when the economy is performing well - flies in the face of what the freshwater crop that's by and large currently in power is prescribing (witness Europe's "austerity measures" which many of the saltwater guys say is directly responsible for the double-dip recession suffered by many European countries). These ideas are not, of course, new either ("spend when you're losing money" is classic Keynesianism), but there is a sense that at least they are based on actual data and not The Model.
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