In my post Irrational Economics, I quoted some surprising observations from an article in The Atlantic titled “Dismal scientists: how the crash is reshaping economics.” I wrote:
“What the article says is that a lot of the economics theories that are being used today haven’t advanced at all in the past 80 years or so. While some of these could have been very relevant in 1920s and 1930s, they are probably completely out of place in today’s context.”
Today, while browsing the Freakonomics blog, a post titled On the Failure of Macroeconomists caught my eye. The author Justin Wolfers writes:
“If you took your first economics class 50 years ago, you’ll recognize all this talk about marginal propensities, multipliers, and crowding out. Fifty years later, it’s still the same debate, and it’s still unresolved. Why are we so reliant on mid-century macro for understanding our current predicament? And why haven’t we developed better answers?”
Wolfers describes what his research found: there were typically about three times the number of research papers on monetary policy, compared to those on fiscal policy. What does this mean? This seems to suggest that while there was a lot of study on how the government and the central bank controls the supply of money, interest rates, etc., and its outcomes, there wasn’t as much study on government spending and taxation. Why this disparity? Wolfers speculates:
“Perhaps the problem is ideology, and pro-market economists don’t like any discussion that gives government a greater role. Or perhaps there are just too many temptations for young economists — monetary policy research pays off because there’s a comfortable career path running from monetary research to the money markets.
Another possibility is research funding: there are 12 regional Federal Reserve banks subsidizing research on monetary policy, and almost no one provides similar subsidies for fiscal research.”
This is something for the economics experts to debate, and far beyond what a layperson like me can comprehend. But if this is true, this would be a good example of how skewed educational funding can lead to disastrous long-term effects on a large scale.