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Why are economists losing prestige?

Summary:
Ezra Klein sees the Biden administration as downgrading the role of economists: Biden has less trust in economists, and so does everyone else. Obama’s constant frustration was that politicians didn’t understand economics. Biden’s constant frustration is that economists don’t understand politics. Multiple economists, both inside and outside the Biden administration, told me that this is an administration in which economists and financiers are simply far less influential than they were in past administrations. Some were frustrated by the change, others thought it a proper rebalancing of roles. But there is nothing like the axis of influence held by Summers, Tim Geithner and Peter Orszag at the dawn of the Obama administration, or that Robert Rubin and Summers held

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Ezra Klein sees the Biden administration as downgrading the role of economists:

Biden has less trust in economists, and so does everyone else. Obama’s constant frustration was that politicians didn’t understand economics. Biden’s constant frustration is that economists don’t understand politics.

Multiple economists, both inside and outside the Biden administration, told me that this is an administration in which economists and financiers are simply far less influential than they were in past administrations. Some were frustrated by the change, others thought it a proper rebalancing of roles. But there is nothing like the axis of influence held by Summers, Tim Geithner and Peter Orszag at the dawn of the Obama administration, or that Robert Rubin and Summers held in the Clinton administration. Janet Yellen, the Treasury secretary, holds real weight in internal discussions, and so do some others, but economists are one of many voices at the table, not the dominant voices. This partly reflects Biden himself: he’s less academically minded, and more naturally skeptical of the way economists view the world and human behavior, than either Obama or Clinton. But it goes deeper than that.

The backdrop for this administration is the failures of the past generation of economic advice. Fifteen years of financial crises, yawning inequality and repeated debt panics that never showed up in interest rates have taken the shine off economic expertise.

I’d add one more factor.  It seems to me that the failure of inflation to move higher has tended to discredit mainstream macroeconomists.  In the mainstream approach to macro, the following three factors are often assumed to lead to higher inflation:

1. A policy of low interest rates

2. Big budget deficits

3.  Sub-4% unemployment (as in 2019)

The failure of inflation to rise above 2% is not easy to explain using mainstream models.

Readers of this blog know that I attribute the low inflation to a relatively contractionary monetary policy since 2008.  But then I’m not in the mainstream.  I do not believe that interest rates, budget deficits and unemployment have a significant effect on inflation, at least in a country like the US (where there’s little risk of default on public debt.)

Of course, these things go in cycles.  Once this new (progressive) approach to policy begins to fail—as all policies eventually do, even successful ones—the pendulum will swing back to those who emphasize the importance of opportunity cost and incentives.

It’s an endless cycle.

PS.  The same is true of other issues, such as crime and punishment.  An endless cycling back and forth between being hard and soft on crime.

PPS.  This also caught my eye:

Economists have their ideas for solving climate change — a hefty carbon tax chief among them — but Biden and his team see this as fundamentally a political problem. They view the idea that a carbon tax is the essential answer to the problem of climate change as being so divorced from political reality as to be actively dangerous. Deese gets animated on this point. “I want to double down on that and say, it’s not just a messaging and narrative imperative,” he told me. “It has to be that Americans see and experience that the investments in building out a more resilient power grid actually improve their lives and create job opportunities for them, or their neighbors.”

Deese is in for a rude awakening.  Climate change policies that are actually effective are not going to be politically popular.  Carbon taxes are the least painful way of addressing climate change.

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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