Thursday, September 2, 2010

It's Official: Obama Has No Economic Clothes

Christina Romer admitted it at her farewell-to-DC speech at the National Press Club.

She had no idea how bad the economic collapse would be. She still doesn’t understand exactly why it was so bad. The response to the collapse was inadequate. And she doesn’t have much of an idea about how to fix things.

She doesn't know how to fix things, so she's returning to private life as an economics professor. Students will probably line up to attend her classes -- even though she still doesn't have a clue about how to end a recession. Having served in a failed White House has become a sought-after credential, evidently. How pitiful.

She's not questioning her basic assumptions, though.

No wonder most Americans think the effort failed. But Romer argued, a bit too defensively, against the majority perception. “As the Council of Economic Advisers has documented in a series of reports to Congress, there is widespread agreement that the act is broadly on track,” she declared. Further, she argued, “I will never regret trying to put analysis and quantitative estimates behind our policy recommendations.”

Now, this is undoubtedly a very intelligent woman; and she illustrates perfectly, I think, how low mainstream economics, under the sway of John Maynard Keynes, has fallen. Economic principles can not be quantified.

Oh sure, you can come up with illustrations, for example, of supply and demand or comparative advantage. But no economist claims to be able to predict the price at which supply and demand will converge at a given time for a specific item. Oh no, too easy to be proven wrong.

But the same economists have no compunction about making solemn pronouncements about the number of jobs that will be created by x billion dollars of government spending. And they predict with seeming abandon how much economic activity will be generated by each of those dollars spent according to the famous Keynesian multipliers.

It's all so much academic masturbation and our government is rife with it. We knew that Obama was ignorant of economics, but we had a right to expect that the supposedly best and brightest minds he surrounded himself with knew, at least, a little bit. It's obvious now that they don't and Ms. Romer has admitted it.

The economic activity of 300 million Americans cannot be predicted and it cannot be manipulated like a corporate spreadsheet by wise, all-knowing government bureaucrats. All the government can do is get itself out of the way of people trying to earn a living.

But that's something that this gang cannot bring itself to do. After all, they no doubt think, what would be the point of having all that power if you can't order people around? We're seeing the results of that with each successive jobs report.

[UPDATE:] It’s time to return the history of economic thought to the college curriculum.

This situation is deplorable. The history of economic thought constitutes an essential part of the broader liberal education of economists.

Studying the history of thought provides, by the reading of original texts and secondary material, a means of engaging the greatest minds on issues of great significance: a fellow historian nicely described this aspect of a typical course as “sitting on a log with Adam Smith.” What are the causes of “the wealth of nations”? Does the labor theory of value make sense? Is the business cycle inevitable? In most of their classes, economics students do not get to debate such “big questions,” and neither do they learn what some of the best minds in their discipline have had to say about them. The whole point of a history of economic thought class is to do so.

[…] Students who learn about economics without the benefit of a history of thought course are inclined to assume that what they learn from their textbooks is settled fact. They do not see that the development of ideas always involves argumentation and criticism, something that usually disappears in textbook treatments of issues.

You have to wonder if Christina Romer has even read Adam Smith. Hard as it is to believe, economics majors often aren't required to. Those who don't know history are destined to ... well, you know.

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