Monday, 30 January 2017

Who’s to blame for austerity in recent years? It’s the economics profession.

Of course it’s tempting and indeed popular to blame politicians, in particular right wing politicians with those gormless left wing politicians repeating the right wing austerity message but using slightly different language.

But politicians are economically illiterate for the most part, so you can’t entirely blame them for falling for the old myth than we can’t have big deficits because that will boost national debts by too much.

However, politicians would have been firmly put in their place had they got a clear message from the economics profession to the effect that in a recession, deficits don’t matter. But they didn’t get that clear message. Far from it.

The IMF and OECD at the height of the recent recession were wittering on about the need for “consolidation”, i.e. repaying national debts. In short they were advocating austerity. Bill Mitchell has written several articles on that point, e.g. see here.

And then there’s a group of economists at Harvard who are as economically illiterate as the average politician (e.g. Kenneth Rogoff and Carmen Reinhart) who were pulling out the stops to warn everyone about the alleged dangers of large deficits.

Of course the economics profession whose members spend half their time covering for each other and scratching each other’s backs are loath to accept any responsibility. Simon Wren-Lewis (Oxford economics prof) regularly claims his profession is blameless.

Sorry mate. That just won’t wash.

Incidentally I’m not  suggesting that mutual back scratching is worse in the economics profession than in other professions. As Adam Smith put it, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

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