Friday, April 18, 2014

Economists as Politicians

These days, it is not unusual to see an economist on television or read an economist in the print media and see zero economics.  Increasingly, economists talk only politics often completely devoid of economic content.  Austin Goolsbee is one example.  Paul Krugman is another.

Simon Johnson is the most obvious example of this in the NY Times.  His article today in the NY Times essentially advocates state run banking, more or less along the lines of the old Chinese and Soviet models.  If adopted, his proposals for banking reform would eliminate any free market role for commercial banks.  Instead, Washington would dictate where banks get their funds and how they spend them.

These kind of reforms make politicians powerful.  Putin is a good example of a leader who doesn't have to put up with free market banking.  Now, Johnson and other economists want to adopt the Putin model for the US.

They are already half way there with Dodd-Frank legislation gradually eviscerating the role of the free market in banking.

What is interesting is that economists are increasingly abandoning economic arguments in their analysis as they discuss policy issues.  The most blatant example, of course, shows up in the discourse on the minimum wage.  But, minimum wage analysis is not the only arena where economists discuss policy issues by turning economics on its head.  Read Simon Johnson regularly and you will be treated to economic analysis without any economics.

That certainly makes it easier to prove your point.  Just assert it and don't worry about the economic logic that underlies your argument.  Raise the minimum wage to $ 1,000 per hour.  That should eliminate poverty according to the line of reasoning now employed by Simon Johnson, Paul Krugman and Austin Goolsbee.

Gone are the days, for these folks, that economic analysis was used to buttress economic policy arguments.  The Fed is probably the most notorious locale where economics no longer seems to matter.  Witness Janet Yellen's recent emotional discussion of the plight of two unemployed people that she knows about.  That drives policy, not economics.

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