Not the Treasury view...: Which (macro)-economists are worth listening to?: [W]hen economists argue about the correct stance of policy, who should we (policymakers, commentators, and the general public) listen to? This question was prompted by a recent exchange I had with Ed Vaizey and Simon Hughes on the BBC's Daily Politics: I pointed out that not only was the government's decision in 2010 to cut the deficit too quickly doing considerable economic damage, but that this was both predictable and predicted by economists such as Paul Krugman and Martin Wolf. Their response was essentially "how were we to know which economists to listen to? Others were saying the opposite"….
[P]olicymakers and the public should listen to economists who… have made empirically testable predictions (conditional or unconditional - see Krugman here) that have proved, by and large, to be broadly consistent with the data; and, second, they base those predictions on an analytic framework (not necessarily a formal model) that is persuasive…. My shortlist… is something like the following: Krugman, Delong and Wren-Lewis on fiscal policy… Adam Posen on monetary policy… Paul de Grauwe on sovereign and eurozone debt; Martin Wolf on private sector savings and public sector deficits (the financial balance approach); Richard Koo on the implications of a "balance sheet recession"
Not all of these economists agree with each other on everything, nor do I necessarily agree with them about everything…. But they each have clear analytic frameworks for thinking about the economy, and have used them to make empirically testable claims; and have largely been vindicated….
[There is] an obvious list of economists or those commenting on economic issues who got it completely wrong, usually because they were using analytic frameworks that were incoherent or lacked empirical evidence. I won't name individuals here, so I leave that to readers, but a short list of influential bodies that should have known better… those… writing editorials at the Financial Times, macroeconomic forecasters at the OECD, the European Department at the IMF… their recent stuff on both UK and eurozone has been pretty good… the senior leadership at the Bank of England and the Treasury, and probably worst of all senior economic policymakers at the ECB and European Commission. Oh, and the credit ratings agencies….
It is worth mentioning two economists who I respect, admire and find interesting but do not in my view qualify for inclusion on my shortlist. They are Nouriel Roubini and Ken Rogoff. In both cases, I - and maybe this is partly my fault - don't understand what, if any, analytic framework they are using, so I find it difficult to impossible to evaluate their advice….
Finally, let me just point out that this is not hindsight on my part. Most of those mentioned above were on the list of economists I read and, whenever possible, consulted when I was still a civil servant involved in policy advice on these issues (2008-11). And I put this specific list together more than a year ago now in preparation for a talk I gave to a group of government economists. And this matters. I don't think there's any doubt that if policymakers, both in the UK and elsewhere (especially in the eurozone) had, during the intervening period, listened to these people rather than their own economic advisers, the state of the UK and world economies would be significantly better than it is now.