Here’s an old joke: if you laid all the economists in the world end to end, they still wouldn’t reach a conclusion. Okay, it’s not very funny – what did you expect from a joke about economists? – but has rarely seemed more relevant after this week’s exchange of letters in the Sunday Times and the Financial Times. Each letter was signed by battalions of distinguished economists. One group thinks we should be raising taxes and cutting government spending soon. The other group thinks we should be raising taxes and cutting government spending later.
It does seem a bit embarrassing that we economists can’t seem to agree. Even more embarrassing is when we all agree and we’re all wrong. If you look at economic forecasts from times gone by, you’ll typically find that all the distinguished forecasters broadly agreed with each other. The only dissenter was reality: economic growth and inflation were usually outside the range of expert forecasts.
I think both embarrassments tell us about the limitations of economic analysis in a complex world. By way of analogy, you would never expect your doctor to be able to forecast when you were going to die, or what condition would finish you off. Medicine just doesn’t work like that: the human body is too complicated. You shouldn’t ask an economist to make a forecast either – but both the economist and the doctor could and should be able to offer remedies for what ails you.
On this occasion, alas, the economists can’t agree on the appropriate details of the prescription. I am not surprised. Unlike doctors, we can’t run controlled experiments. We have to make our judgements on the basis of some theory and a few historical episodes, none of which ever exactly repeat themselves. That calls for a bit of humility.
So I won’t be trying to adjudicate in this debate. In any case, this is macroeconomics, and I’m a microeconomics guy. In case you’re wondering about the difference, the humorist P.J. O’Rourke has the answer: microeconomics is about the money you don’t have. Macroeconomics is about the money that the government is out of. That joke has rarely seemed more relevant either.
EDIT: John Willman (below) asks about the quality of the signatories. I don’t think Lord Skidelsky distinguished himself on the Today programme this morning – seemed to be much more interested in debating points than the economics. But there are very impressive names on both sides.