If you think that smart people are somehow more capable of independent thought and less subject to falling for preposterous groupthink than you are, then you need to check out the article "Empire of the Institute" from over the weekend by Official Manhattan Contrarian Worst Economics Writer Paul Krugman.
Krugman points out that a large percentage of the pooh-bahs currently or recently running or sanctimoniously pontificating on world economic policy all got their economics Ph.D.s at the same time at MIT in the late 70s to 1980:
Ben Bernanke 1979
Olivier Blanchard 1977
Mario Draghi 1976
Paul Krugman 1977
Maurice Obstfeld 1979
Kenneth Rogoff 1980
For readers who may not recognize all the names here, Bernanke was until recently Chairman of the U.S. Fed; Blanchard has the portentous title of "Economic Counsellor [sic] and Director of the Research Department" at the IMF, from which perch he purports to advise struggling third-world governments never to cut government spending under any circumstances; Draghi is current President of the ECB; and Obstfeld and Rogoff are prominent academics at Berkeley and Harvard, respectively.
Krugman's article asks the critical question to which I am sure you are all dying to know the answer:
So how did MIT establish this unique position in academic economics applied to policy?
You can read Krugman's article (if you can stand it) to get his answer, which is complicated and filled with economic jargon. Or you can consider my answer, which is much simpler: These guys tell incumbent politicians exactly what they want to hear, which is that more government spending is always a good thing, and they can spend as much as they want without adverse consequences and with no need to raise taxes. In fact, the essential message of these guys is that more government spending, even wasted spending, even spending corruptly given over to your cronies and buddies, even spending that runs up debt to an extent that can never be paid off with taxes, is a positive good that will get your stalled economy going again. As a politician, you can get this advice from what seems like a brilliant, top-credentialed MIT technocrat, basking in the respect of his peers and a darling of the New York Times editorial page. And the only people objecting are a few cranks like the Manhattan Contrarian -- he's telling you that you can't do anything fun while you have your hands on all this free money, and he doesn't even have an economics Ph.D.! So whose advice are you going to take?
All I can say is, it's the incredible power of groupthink, even over what would seem by IQ or SAT scores or college grades or other comparable measures to be some of our very smartest people; indeed, groupthink seems to be especially powerful over the seemingly smartest people. After all, to believe the extreme version of Keynesianism that these guys foist upon the world, you have to believe, among other things, that:
- Incurring government debt in unlimited amounts has no negative effects on economic performance
- It doesn't really matter for a government whether it bothers with taxes at all -- Just incur more debt!
- Diverting resources from more productive to less productive uses through government expenditure is a positive good for economic performance.
I just don't think that it's possible to believe things at this degree of preposterousness unless you have the benefit of lots of similarly-credentialed seemingly smart people all nodding at each other and reassuring each other that it all makes sense.
At the end of his article Krugman as usual claims that recent economic results around the world vindicate the theories of him and his groupthinking colleagues. Care to give us any explanation for Venezuela, Argentina, Greece, or Cuba? Arnold Kling at askblog comments:
Empirical macroeconomics seems to me to boil down to a pure exercise in confirmation bias.
Although not mentioned in Krugman's article, the biggest name in the MIT Economics Department in the late 70s was Paul Samuelson, famous for making millions on the textbook that taught Fallacy Keynesianism to generations of college students, and for making the most famous disastrously wrong economic prediction of all time -- made in 1943:
[W]ere the war to end suddenly within the next 6 months, were we again planning to wind up our war effort in the greatest haste, to demobilize our armed forces, to liquidate price controls, to shift from astronomical deficits to even the large deficits of the thirties--then there would be ushered in the greatest period of unemployment and industrial dislocation which any economy has ever faced.
Well, the war did end suddenly, government spending was promptly cut in half, and the economy took off. You don't know that because you read the New York Times and it doesn't fit their narrative. Don't tell Blanchard, Draghi, Krugman, et al.