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Wednesday 21 Feb 2018 | 00:21 | SYDNEY
Wednesday 21 Feb 2018 | 00:21 | SYDNEY

Blogs and the US economic debate



9 January 2012 11:26

Economists have certainly taken to blogging with alacrity. But this vigorous debate has done little to winnow out dodgy arguments or produce a policy consensus. Economists have a reputation for hedging their bets ('on the one hand...on the other hand...'). But in the current US macro debate, you can find blogger-advocates along the entire policy spectrum, each adamant that their position is correct.

On fiscal policy, 'Keynesians' urge budgetary stimulus to tackle high unemployment. Others urge inaction (the Ricardians, the 'real business cycle' proponents, and those who believe any stimulus will be lost through an appreciation of the exchange rate). Still further along the policy spectrum, others argue that fiscal austerity will boost confidence so much that private sector expenditure will increase and there will be 'expansionary austerity'.

Monetary policy bloggers reveal the same diversity. For some, Fed Chairman Bernanke's zero interest rates, two doses of 'quantitative easing', and 'operation twist' to lower the long-term interest rate have been the only thing preventing economic collapse. Others urge inaction: Bernanke's activism just confuses the private sector which contracts expenditure. Further out on the policy spectrum there are those who see any increase in money supply as leading directly to inflation and low interest rates as distorting savings.

A dispassionate discussion based on analysis of the facts would probably narrow the range of views, even reach a degree of consensus. On fiscal policy, a lot depends on whether the government's debt position is seen as needing immediate action, or can wait until the economy is growing more strongly. Similarly on monetary policy, it's easy to have a useful debate on what The Economist put forward as a vexed policy issue — the relative merits of inflation targeting versus nominal income targeting.

But has blogging helped resolve the issues? There are two tests:

  • Did anyone change their mind?
  • Is policy better as a result?

The answer to both questions seems to be 'no'. Try searching blogs for phrases like 'I was wrong' or 'I've changed my mind'. Instead, some become shriller while others use the debate to reinforce and sharpen the hard edge of their opinions. And it's clear that policy is not doing what any of the bloggers recommend.

Why is it so? Is it part of the bloggers' intrinsic style to hold views strongly — to have 'conviction'? Are there fewer requirements for hard evidence, facts or a rigorous analytical framework? Are they 'fractious and inclined to mock each other' (as The Economist puts it) and so less open to compromise? Can determined bloggers continue to pontificate, even in the face of an established track record of predictive failure?

The answer is 'all of the above'. Why is this so? The nature of the US political system encourages bloggers to declare their politics pretty explicitly. As we have seen among the Republican presidential candidates, there are some amazing economic views put forward as candidates compete to get traction with voters and commentators. Bloggers can either go the middle-of-the-road way by ignoring this (ie. be boring and irrelevant), or take sides. Once they do, you know what they are going to say on most policy issues and they aren't going to be swayed by counter-arguments. Marty Feldstein and Paul Krugman (both academically mainstream) can be relied on to advocate very different policies.

In any case, economics doesn't have much to offer on what are essentially political choices. A good part of the US debate is about the appropriate size of the government sector and the degree of government intervention in pursuit of social objectives. International experience shows that you can have a successful economy with a large government sector, high taxes, reasonably equal distribution of income (the Scandinavians). Or you can go to the opposite end of the spectrum (Japan, the US). Both work, so economists taking sides in this debate are exercising their political judgment.

Perhaps the problem is that economics should have a large element of 'on the one hand...on the other hand...'. Often optimal policies are situation-specific ('it all depends…'). One of the basic lessons of economics is that 'anything is possible, nothing is certain, and everything depends on everything else'. To join the policy debate, the blogger has to take sides on the doctrinal issues and back this with whatever facts (or factoids) can be cobbled together. In resolving the technical economics underlying this, these blogs are of little more use than a politician's soap-box oratory.

Photo by Flickr user StreetFly JZ.

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