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June 13, 2012

Lost Knowledge

Bernard Wasow

The flower of civilization sits on a thin stem.  Take away the knowledge of the scientists, engineers, and the practical people who produce and transport food and manufactures, and the globe could support no more than a few hundred million people, to say nothing of the achievements of culture that employ most of us.  All the bankers, talk show hosts and personal trainers in the world could not keep a city of even a million people going for even a few days without the backbone of knowledge that keeps the factories and the trains moving.  That is why attacks on science – both as a set of hypotheses supported by evidence and as a method of evaluating hypotheses – pose such an existential threat to life as we know it. 

Some attacks on scientific knowledge simply play out the long tail of ignorance that resists any new idea.  Denials of the theory of evolution or of climate change are examples of rearguard actions by people who are blinded by some mixture of stupidity and unshakable prior faith.  In a few decades, one can reasonably hope, these deniers will be no more influential than those who continue to argue that microorganisms do not cause disease, or that the earth is the center of the solar system.

Scarier is the reappearance of ignorance that we thought was behind us.  If we needed to rediscover the corpus of human knowledge every century, civilization never would get anywhere.  That is why the current fight over macroeconomics is particularly scary.   Not that macroeconomics is a science like astronomy or biology.  But good economics uses scientific method to infer and test hypotheses about how the world works.  All other economics is essentially BS, opinion balloons released from the same flat earth, catching attention and then floating away.

Eighty years ago, in the midst of the Great Depression, economists (notably, of course, Keynes) called attention to some accounting identities: what people earn is equal to what others spend; the global sum of all net saving equals the sum of all net investment.  These identities are true by definition.  The theory of macroeconomics concerns the problem of satisfying these identities while at the same time generating the production, income , and trade that the system is capable of, avoiding high unemployment (as occurred in the Great Depression) or rampant inflation (as occurs from time to time in various countries).

The identities at the core of macroeconomics, and the problems that occur when the sums of planned spending or of planned saving and planned investment do not add up to what the economy is capable of, are universal.  The idea that government should actively try to bring the system to its capacity is not universal.  Keynesian counter-cyclical policy is not an inevitable consequence of macroeconomic analysis.  But concern about the level of aggregate demand in this time of excessive unemployment is a direct consequences of macroeconomic analysis.

At one time (say the 1960s and 1970s), we knew this.  Today, we seem to have lost macroeconomics, not as a set of policy prescriptions but as a set of analytical questions. 

 What is the analytical foundation that underpins the pressure to promote austerity, to balance budgets in the short run?   I have looked for analysis and sytematic use of evidence,but I have found none. 

The closest one comes to analytical justifications for universal austerity is an appeal to group psychology.  “Uncertainty,” “confidence” – psychological perceptions that undoubtedly are important for individual decisions – often are evoked as the drivers of production and spending plans.  Public sector austerity and balanced budgets are defended as signals to the rest of the economy.  Factory owners and consumers are supposed to become optimistic in the face of public austerity, bringing their spending plans in line with the capacity of the economy.  This theory has never been rigorously tested, and the casual evidence of the last few years suggests, once again (we knew this in the days that macroeconomics aspired to scientific rigor), that the private economy does not self-correct quickly, even when governments behave like good little shop keepers.

Deniers of macroeconomics combine their fiscal policy prescription – that all governments should follow the budget and spending rules of good bourgeois household – with the idea that monetary expansion, anywhere and everywhere, poses the threat of imminent inflation and consequently it must be avoided, anywhere and everywhere.  Again, this is a belief that floats free of evidence.

We are repeating history because we do not understand it.  More troubling, our ignorance is willful.  There are no competing theories of macroeconomics, with researchers rushing to test the ideas against evidence.  Politician after politician is pursuing austerity because he knows it is the best thing to do. 

Even if creationists gained control of school systems, we might hope that some elite, people who actually work with breeding programs and genetics, could preserve what we know, could continue to advance technology and science.   Macroeconomic knowledge can be preserved by elites, but not used.  Macroeconomics has its effect when whole societies use it, through public policy.  If political leaders refuse to engage evidence and scientific process, we might as well never have come up with the knowledge.


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