There is one small problem, theses theories are often wrong. Earlier this week it was revealed that one of the foundational papers arguing for austerity and smaller deficits in the face of our economic woes was in fact a fraud. The paper published by two economists named Reinhart and Rogoff originally argued that nations' with a national debt of more that 90% of their GDP experience a major slowdown in economic growth. Matt Yglesias has said, "This is literally the most influential article cited in public and policy debates about the importance of debt stabilization..." This paper has been used repeatedly to make the argument both in the US and Europe that smaller deficits through austerity is more important than trying to lower unemployment and create jobs.
The errors in the paper are quite numerous, Paul Krugman summed them up as:
According to the review paper, R-R mysteriously excluded data on some high-debt countries with decent growth immediately after World War II, which would have greatly weakened their result; they used an eccentric weighting scheme in which a single year of bad growth in one high-debt country counts as much as multiple years of good growth in another high-debt country; and they dropped a whole bunch of additional data through a simple coding error.Which is polite academiceese for "your paper is a fraud, or you are grossly incompetent at your job."
Fix all that, say Herndon et al., and the result apparently melts away.
While it's always enjoyable to poke fun at so called "experts" when they fall on their faces, I think it illustrates something much bigger. The dismal science is simply in a dismal state. Despite a huge number of professors all over the world, despite massive government and private funding of economic "experts," despite requirements that undergrads take classes in economics, and legion of grad students continuing to pour into it's study, the discipline seems to illuminate nothing about our world. Worse, when economists do come to something close to a consensus conclusion, it might just be because someone typed the wrong number into a excel spread sheet as much as anything else.
To make matters worse Reinhart and Rogoff aren't owing up to their mistakes, instead they are spinning like beltway champions now that they are confronted with the reality of their screw ups. They've just issued a Nixonian non-apology apology. A key part of science and the whole peer review process is people have to be willing that admit they were wrong, if they don't it becomes difficult to advance human knowledge. Instead what we see is two economists who seem more devoted to a political ideology, or perhaps their careers, than what trying to learn about how economies work.
A few months ago I read an interview with British film maker Adam Curtis where he referred to a lot of economics as "a failed pseudo-science." At the time I thought that was a little harsh. But looking at this failure, and the refusal of these two economists to even own up to their error, maybe Curtis was on to something after all.