Over at Equitable Growth: On Jeff Madrick's “How Mainstream Economic Thinking Imperils America”: Focus

Over at Equitable Growth:

https://www.icloud.com/keynote/AwBUCAESEI1wrCJypZNF6fbFgtVmtncaKZCu2LOwGYsMx-wgz8nPub9eQBEy_AUuFejJ7SJdGZgE-VOMkpVAng6ZMCUCAQEEIAebYASg4sbSFBqtcdZHVPoln0iTNTEdYaw5tTzFWKTX#2014-10-22-Jeff_Madrick.key

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On Jeff Madrick’s “How Mainstream Economic Thinking Imperils America”

J. Bradford DeLong :: U.C. Berkeley :: Prepared: 2014-10-22

The Seven Bad Ideas Jeff Madrick Sees

The "Invisible Hand"
Say's Law
Friedman's Folly: Government's Limited * Social Role
Low Inflation Is All That Matters
“There Are No Bubbles”
Globalization Is Always Good
Economics Is a Science

In Madrick's Introduction

Praised in the Introduction: John Maynard Keynes, Dani Rodrik
Criticized in the Introduction:

Adam Smith--no comment necessary...
Olivier Blanchard--the de facto leader of the Sixth International: on the left of the spectrum of policymakers...
Larry Summers--principal advocate of the Keynesian expansionary-fiscal solution to our troubles...
Milton Friedman--when he was alive, the most powerful advocate of unlimited quantitative easing...
Bob Rubin--on his watch big banks were bailed-in during financial crises, not bailed-out…
Ben Bernanke--most left-wing central banker we had (although I will concede his attachment to 2%/year inflation target, and failure to reach it, are huge minuses)…
Robert Lucas--underbriefed and destructive...

Reading Along…

Madrick on Christina Romer:

“In a piece she wrote for The New York Times criticizing an increase in the minimum wage, Christina Romer, the former Obama adviser and considered by many to be a political liberal, implicitly made this same oversimplified assumption that workers usually get what they deserve. This is an example of Friedman’s broad influence…"

Romer:

We have better policies available: expand the EITC is better targeted
For the long-run, universal kindergarten and pre-K have more bang for the buck
And these are expansionary fiscal policy--spending money gives a macroeconomic boost as well
But if the choice is for a higher minimum wage or nothing, I'm for a higher minimum wage...

Food for Thought

Of these 8 whom Madrick criticizes…
…Somewhere between 5 and 7 are to the left of current North Atlantic policymakers
Not excluding Obama

PFoJ vs. JPF, Perhaps?

A little misplaced ire, I think…
But I don’t want to go there…
I would rather go to…

I See Four Yawning Gulfs

Between:

the economic policies that those whom I regard as “serious” economists are advocating, and
those that are being implemented…

Between:

what economics says, and
what right-of-center economists are telling their political masters it says…

Between:

what economics says, and
what economics should say…

Between:

my “inside” view of what I think economics says, and
Jeff Madrick’s "outside” view of what he thinks economics says...

As I See It

The problem of where economics starts
The problem of the decreasing relevance of the Smithian model
The stringent requirements for market effectiveness

Current policy and current tasks

Where Economics Starts

Economics starts from the presumption:
that market success is the benchmark, and
that market failure is anomalous

It ought to start from the presumption:

that market construction is difficult

It ought to have:

a grammar of other forms of organization—
command, bureaucracy, charity, cooperative, regulated monopoly, yardsticks, etc.—
and where they succeed and where they fail

Decreasing Relevance of the Smithian Model

We have a great deal of economic life in sectors where we know the market will not work well, and
These sectors will only grow in relative importance:

Pensions
Health-care finance
Education
Infrastructure
Research and development
Information goods more generally

The Stringent Requirements for Market Effectiveness

Here are seven requirements:

Distribution of wealth corresponding to fairness and utility
Aggregate demand matched to potential supply
Competition
Calculation
Rivalry
Excludability
Information symmetries
And, no, a night-watchman, a court, and cutting property rights at the joints will not get us there

Current Policy and Current Tasks

Policy is far to the right of even where the really-existing economics profession is
At least, where the "serious" piece of it, in an intellectual sense, is
*And it is not to the smart right either
Why?

How to fix it?

Books like Jeff's, of course, but what else?
Two tasks:

Move the "serious" economics profession
Move policymaking to the "serious" economics profession
Both seem of equal importance and difficulty

Lightly-edited transcript of discussion