Is Economics Worthless?
The subject of the stimulus furiously divided the economists of the Chicago faith from others. The Mellonites are convinced that the stimulus is unlikely to do any good. Meanwhile, Krugman, DeLong and others keep complaining that despite all their Nobel Memorial prizes, the fresh-water economists don't understand elementary macroeconomics. The width of the gulf suggests that there might not be anything that economics has learned that is relevant to science or policy. Krugman:
...Nobody who was at all familiar with this literature could make the logic mistakes that are coming fast and furious from the fresh-water economists.
What this reveals, I think, is just how insular part of the macroeconomics profession has become. They just don’t read anything that doesn’t come from their cult circle; they just weren’t aware of major bodies of work that didn’t happen to be in their preferred style.
This insularity is asymmetric. Ask a PhD student at Princeton what a real business cycle theorist would say about something, and he or she can do that; ask a student at one of the freshwater schools what a new Keynesian would say, and I doubt that he or she could answer. They’ve been taught that there is one true faith, and have been carefully protected from heresy.
It’s a sad story.
For the top experts to be so divided on a question like this suggests to the outsider that in economics, there is no there there. Perhaps we would be better off if all the economics departments were bulldozed and replaced by something more practical, like art history.
Back when physics used to be a science, we had a remedy for such impasses: see what the alternative theories predict and check the results against what actually happens. Given that it seems certain the stimulus will be passed, maybe the fresh and salt water varieties of economist could agree on what their respective theories predict differently about the results. If they do, at least we can check the results and figure out which half of the profession are the idiots that the other half claims. If they can't, or don't predict anything differently, we can conclude that the mutual contempt bandied about is just posturing, and that neither has anything useful to say.
My money is on the neo-Keynesians, but that leaves the question of what the Friedmanites got all those Nobels for.