This article appeared in the Saturday New York Times and seems to suggest that the doctrine of Keynes may not be holding so steadfast:
The X Factor of Economics: People
By DAVID SEGAL
Published: October 16, 2010
Economists — they certainly are a contentious bunch.
The latest evidence came last week, in the form of the minutes of the latest meeting of the Federal Open Market Committee, the brain trust that establishes monetary policy. The committee, we learned, is divided on a seemingly straightforward question: Should the Fed take action to goose the economy now, or wait, watch and perhaps goose later?
Similar debates have attended virtually every element of the government’s efforts to turn the country’s fortunes around — even the parts that have been unfolding for more than a year. You might assume, for instance, that there would be a broad consensus about whether the $787 billion stimulus, passed in early 2009, worked.
But generally speaking, economists who thought it was a good idea at the time think it worked, and economists who thought otherwise beg to differ. And both sides make their cases with plenty of hard numbers.
Let’s leave aside the merits of these arguments and ask a question so basic it will sound naïve: Why do economists argue at all? Given that Fed members and economists are looking at the same data, and given the reams of evidence accumulated over decades — not to mention a few centuries of great minds, great theories and thick books that preceded this crisis — why isn’t a right answer self-evident?
George Bernard Shaw once said, “If all economists were laid end to end they would not reach a conclusion.” How come? What prevents economics from yielding answers the way that physics, chemistry and biology do?
As it happens, plenty of dismal scientists have pondered this one. After the onset of the Great Recession, there was considerable hand-wringing about what the discipline had gotten wrong, memorably captured last year in an article by Paul Krugman in The New York Times Magazine. But the limits of economics is a subject that many in the field have been discussing for years, in print, in discussions with each other, and, in the case of Robert Solow, Nobel Prize winner and M.I.T. professor emeritus, with graduate students.
“I talk about what it is about economics and economic life that leads to differences of opinion,” Mr. Solow said. “One point I always make to my graduate students is, avoid sound bites. Never sound more certain than you are.”
To explain the case for humility in economics, Mr. Solow said, look no further than the stimulus bill: “It has run its course over the past year and a half, but it is not an isolated event. One thousand other things were happening that had an effect on employment and real G.D.P.,” a measure of a nation’s total output adjusted for changes in prices. “You want to trace the effect of one of a very large number of significant causal effects, and that’s a very hard thing to do.”
That the world doesn’t offer up clean economic experiments is a common refrain in the discipline, said Gary Becker, a Nobelist at the University of Chicago. There have been endless studies on every tax change in the modern history of the republic, Mr. Becker said, from Kennedy to George W. Bush, and arguments about the wisdom and aftereffects of each. It’s not just that there is so little clear signal amid so much noise. It’s that many economists have a unique idea of what signal to listen to and what priority it deserves.
This article seems to concede, to a degree, that the classical liberal economic ideas of spontaneous order and immeasurable human action are more important than today’s “lead” economists will admit.
Once the central bankers and policy leaders realize that their continued mass intervention in the market only creates temporary relief bound to burst, it shall be their removal that will eradicate market uncertainty and reluctance to invest. For it must be remembered, as this article suggested, that immeasurable human action and motivation make the practice of economics extremely complex and complicated.
Though no one solution can be imagined or implemented, the continued practice of bad policy will yield bad results.
“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”