Time for a bit of economic navel gazing.
What does the global financial crisis mean for the state of economics in the early part of the twenty first century? Pass? Conceded Pass? Fail?
Well at the end of 2008, for all the talk of the search for stability from economists we still do not have it, or anything like it.
Instead, we have recently experienced in the US is two closely spaced booms and busts, a former god of monetary policy in Alan Greenspan throwing his hands up to 40 years of theory around self-regulation after being blamed for the most recent bubble.
Further, the Great Moderation, the 23 years from 1983 to 2006 of what seemed like a permanent reduction in the volatility of the economic cycle, which as recently as 2004 had Ben Bernanke delivering self-congratulatory speeches praising economics on its greater understanding, appears to have been a chimera. Ending as it has in such extreme volatility it looks more likely it was a period of a push-forward of volatility, probably enabled through private debt expansion.
Monetary policy theory is also far from settled. The latest fashion in monetary policy is only around 20 years of age. It is likely to have to rapidly evolve to no longer ignore asset price bubbles, and to resist administering the monetary policy defibrillator paddles at the first sign of an overdue correction back to sustainable growth (think the tech wreck).
Probably the scariest thing about the current state of economics is that it just has not seen disasters coming. Right up to the time the iceberg gets hit economists can be relied upon to be at the helm calling 20 to midnight and all is well. In fact it is a sure bet some will still be calling all is well long after impact.
And when that disaster does strike, the best and brightest, don’t seem to know what to do.
Science and technology in comparison has had an undeniably fantastic century. Their state at the beginning of the 20th century bears little relation to their state at the beginning of the 21st. The fundamentals for many of the sciences now seems fairly settled at least to an extremely good approximation, technology is at levels of complexity inconceivable a hundred years ago . Economics, meanwhile, is scratching around through its back catalogue trying to find answers to very serious pressing economic problems, while at the same time reassessing its fundamentals. Indeed, much of the latest thinking in the dismal science is about resurrecting the ideas of a long dead economist. Specifically, the one who warned us about the dangers of, um, long dead economists. We must be stuck.
As a direct result of the dismal sciences inability to keep pace with science and technology the scale of the dangers of its failure to deliver on the basics -steady growth has increased. With globalised economies we face increasing coordination of economic downturns. There is a fair case to be made that we globalised too soon, that economics just is not up to it.
I think it is time for the public to give economics what it deserves, a big fat F.
F for failure to deliver steady growth, F for consistently getting policy settings wrong, F for having no idea when disaster is about to strike, F for not knowing what to do when we do have a disaster, and F for not having its fundamentals settled sorted after millennia of trying.
Fair call? Where to from here? More of the same?