What’s the Matter with Economics?

Dominique Nabokov
Jeff Madrick, New York City, 2010

The Queen of England famously asked British economists why nobody saw the financial crisis coming. Lots of nonroyal people also have a feeling that there’s something wrong with economics. Jeff Madrick, an economics journalist of some accomplishment and considerable intelligence, shares his views on what’s wrong with economics in this engaging book. But methinks the gentleman doth protest too much.

Madrick really is a gentleman—and something of a scholar, too. Unless you are already steeped in economics, you will learn much from reading Seven Bad Ideas, including a lucid exposition of the so-called efficient markets theory and a nice essay on the shortcomings of economics as a science. You will also encounter a few delightful bons mots along the way, such as: “A beautiful idea can be described as one that explains a lot with a little.” Madrick knows how to wield a pen.

He is also an important and eloquent voice for what’s left of the American left—at least in economic matters. Given the notable rightward shift of the US political spectrum, I’m glad we have Jeff Madrick around. I wish he could clone himself. But parts of Seven Bad Ideas constitute serial exaggeration.

The book’s main thesis is stated with stark clarity in the very first sentence: “Economists’ most fundamental ideas contributed centrally to the financial crisis of 2008 and the Great Recession that followed.” Centrally? I don’t think so. A more accurate sentence would start, “Some ideas of conservative economists contributed a bit…,” but that wouldn’t attract attention. Alas, the truth is duller than fiction.

When I hear or read dramatic portrayals of economists’ enormous influence on policy, I don’t know whether to laugh or cry. On the one hand, it is flattering to be thought so influential. On the other hand, I can’t help remembering economist George Stigler’s contrary verdict, delivered in 1976: “Economists exert a minor and scarcely detectable influence on the societies in which they live.”1

Here’s a little test. As a general matter, which statement do you think comes closer to the truth?

(a) The dominant academic thinking, research, and writing on economic policy issues exert a profound, if not dispositive, influence on decisions made by politicians.

(b) Politicians use “research findings the way a drunk uses a lamppost: for support, not for illumination.” (The quotation is from economist Jared Bernstein, as cited by Madrick on page 200.)

I suspect you answered (b). If so, you got it right. Madrick’s answer seems closer to (a).

My main quarrels with Seven Bad Ideas are three, which I’ll take up in turn. First, as just mentioned, academic thinking and research don’t have nearly as much influence on economic policy as Madrick imagines. Second, his characterization of what constitutes mainstream economics is heavily skewed to the right; it’s more about conservative economics. Third, most…

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