Thursday, April 25, 2013

The Dismal State Of The Dismal Science Continued

Maybe we are just in a news lull with the end of the Boston bombing mega story, but there was a lot of chatter yesterday about how smart, or "smart" George W. Bush really was.  It was all started by the former head of Bush's Council of Economic Advisers Keith Hennessey, who wrote a blog post with the "please link to me" title of "George W. Bush is smarter than you."  Ezra Klein wrote a good response about how this might be true but Bush was still terrible at being President while Matt Yglesias made good points about the awfulness of Hennessey's post and what the questions are that we should be asking about the Bush legacy.  Heck a search of the longwalk files has reviled that I've written about this too.

Hennessey argues that George W. Bush was in fact very smart mainly because when Hennessey worked for him Bush seemed smart in briefings and meetings, he then goes on to explain that the whole reason people doubted the brain power of the 43rd President is because the media is biased against people from Texas.  This is typical boiler plate you'd expect from a loyal Republican solider (Hennessey came up in Trent Lott's farm team in the '90's) and a person that worked in the White House from 2002 to 2009 and didn't really register with me.

What annoyed me was the way this whole blog post get's started:
The new George W. Bush Presidential Center is being dedicated this week. This seems like a good time to bust a longstanding myth about our former President, my former boss.

I teach a class at Stanford Business School titled “Financial Crises in the U.S. and Europe.” During one class session while explaining the events of September 2008, I kept referring to the efforts of the threesome of Hank Paulson, Ben Bernanke, and Tim Geithner, who were joined at the hip in dealing with firm-specific problems as they arose.

One of my students asked “How involved was President Bush with what was going on?” I smiled and responded, “What you really mean is, ‘Was President Bush smart enough to understand what was going on,’ right?”

The class went dead silent. Everyone knew that this was the true meaning of the question. Kudos to that student for asking the hard question and for framing it so politely. I had stripped away that decorum and exposed the raw nerve.
If the question really was suppose to be "Was President Bush smart enough to understand what was going on, right?" Hennessey is the wrong person to ask.  The reason?  Hennessey didn't know what "was going on" then or now, indeed no economist does.

Take a step back from terrible economic problems that have plagued the developed world since 2007 and think of what economists can really tells us about what happened and why and you are struck by the fact that they simply don't know.  Almost no economist of any ideological or political persuasion predicted the crash.  Since then their predictions have varied wildly and are often wrong.  Austerity was suppose to lead to growth in Europe but instead it led to a continent wide depression.  Our nation's deficits were suppose to lead to inflation or recession or inflation and recession, instead we have slow growth and record low borrowing cost.  In short a huge number of people, like Hennessey, who had spent their life's work trying to be able to explain these things were shown to have no idea what they were talking about.

Some economists, Paul Krugman comes to mind, have been making predictions that come true.  Indeed Paul's mathematical models and theoretical frame work have a pretty good track record over the past 10 years.  But that doesn't mean that Krugman has discovered the secret to fixing our economic problems, he could be simply getting lucky or his analysis may be good in this situation but unhelpful in a situation we might face in twenty years.  Meanwhile award wining economists quoted by powerful politicians all over the West seem incapable of basic excel coding, or at least checking their work.

The history of economics is filled with very smart people thinking they had "solved" problems, only to see those problems rear their heads again and again.  Indeed both liberal and conservative economists thought 50 years ago that they had solved the problem of another Great Depression forever.  Of course, they hadn't.  In fact, they'd also created new problems along the way.  But instead of even a small amount of self reflections over the failures of this discipline, from it's ranks we just the self-serving bromides of party loyalists explain their old boss really was a genius after all.  It's like living in the mind of narcissistic tenured professor.     

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