A small follow up on the crisis in economics

In my last post I touched on whether there is or there needs to be a crisis within the profession and teaching of economics. As I may have mentioned there seems to be a rumbling noise that many wish to ignore, something in the woodshed that won't go away. This came up again this morning during a panel session at the YouGov-Cambridge Forum 2011, where Vicky Pryce and Lord Griffiths were in conversation with Paul Mason.

In questions I brought up that economics may have failed to train policy analysts and policy makers effectively over the past 20 or 30 years, as macro went into abstract mathematics in an all encompassing way and structural or industrial economics basically was ignored. This didn't really get much traction with Vicky Pryce, but it did beg the question whether economics is now getting in the way of good policy making?

The latest expression of concern about the discipline comes from none other than Paul Krugman and his recent Presidential address to the Eastern Economics Association. There he makes the case that there are three complaints that could be made - that economists did not see the crisis coming, that economists failed by not even considering that such a crisis could occur, and finally that they have failed to provide useful advice in the midst of the ongoing crisis. 

He concludes that the first would be unfair, that the second is substantially true, but that the third is true and is the worst failure. He charges that "We’ve entered a Dark Age of macroeconomics, in which much of the profession has lost its former knowledge, just as barbarian Europe had lost the knowledge of the Greeks and Romans."

As we head towards a double dip and in some eyes potentially a second credit crisis this is not the time for joy in the pain of others. However it is a time when policy makers at the most senior level, whether they come from an economics background or not, to face up to the shortcomings in economic knowledge and practice and to be open to non-dogmatic solutions to the problems of most developed economies. The limits of evidence, knowledge and practice within specifically macroeconomics must be openly acknowledged so that other voices can get into the policy process. Not because we don't like economics, but because we need solutions that work and quick, not more of the same.

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