On Jeff Madrick et al.: How Mainstream Economic Thinking Imperils America

DRAFT PRESENTATION SLIDES:

On Jeff Madrick: How Mainstream Economic Thinking Imperils America

J. Bradford DeLong
U.C. Berkeley

For Delivery: 2014-10-23
Prepared: 2014-10-22

Jeff Madrick’s Seven Bad Ideas

1. The “Invisible Hand”
2. Say’s Law
3. Friedman’s Folly: Government’s Limited Social Role
4. Low Inflation Is All That Matters
5. There Are No Bubbles
6. Globalization Is Always Good
7. Economics Is a Science

In Madrick’s Introduction*

• Praised in the Introduction: John Maynard Keynes, Dani Rodrik
• Criticized in the Introduction:
  1. Adam Smith–no comment necessary…
  2. Olivier Blanchard–the de facto leader of the Sixth International: on the left of the spectrum of policymakers…
  3. Larry Summers–principal advocate of the Keynesian expansionary-fiscal solution to our troubles…
  4. Milton Friedman–when he was alive, the most powerful advocate of unlimited quantitative easing…
  5. Bob Rubin–on his watch big banks were bailed-in during financial crises, not bailed-out…
  6. 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)…
  7. 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:
  1. We have better policies available: expand the EITC is better targeted
  2. For the long-run, universal kindergarten and pre-K have more bang for the buck
  3. And these are expansionary fiscal policy–spending money gives a macroeconomic boost as well
  4. 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

1. Between:

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

2. Between:

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

3. Between:

   • what economics says, and
   • what economics should say…

4. 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 policies 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 Smithies Model

• We have a great deal of economic life where we know the market will not work well, and
• These sectors will only grow in relative importance
  1. Pensions
  2. Health-care finance
  3. Education
  4. Infrastructure
  5. Research and development
  6. Information goods more generally

The Stringent Requirements for Market Effectiveness

• Here are seven requirements:
  1. Distribution of wealth corresponding to fairness and utility
  2. Aggregate demand matched to potential supply
  3. Competition
  4. Calculation
  5. Rivalry
  6. Excludability
  7. 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

.key | .pdf