Monday, July 16, 2012

Economics Has No Findings That Command Widespread Agreement?

Sometimes you see people claiming the above as a way of dismissing the entire economics profession. Now, I am no defender of economic imperialism in the social sciences. But I also think the claim questioned in the title of this post is seriously overblown. Consider the theory of optimal currency areas developed largely in the 1960s and 1970s. According to the tenets of this theory, as interpreted by many prominent economists, the Euro was a bad idea. According to an unpublished paper that I have just read, both Paul Krugman and Milton Friedman warned against the creation of the based on this theory. Many economists, apparently, predicted just the ways in which the Eurozone would break down.

The politicians ignored these warnings and went ahead based on political considerations. And the economists turned out to be correct.

So, although there are many contentious areas in economics, there really is some core agreement, backed up by empirical evidence.


  1. "According to an unpublished paper that I have just read, both Paul Krugman and Milton Friedman warned against the creation of the based on this theory."

    Really? I keenly remember Krugman arguing, in a piece I read, that although Europe was not an optimal currency area, the euro was nonetheless a good idea (on the ground that it would advance the dream of political union).

    1. Well, really according to this paper! More I cannot say.

    2. Krugman has also said that the monetary union should have been coupled with a fiscal union in the first place.

  2. Heck, naval wargame developers predicted just how the euro would break down. (Scenario booklet with the GDW publication of Harpoon in the late 80s) They got the second order effects wrong though.

  3. It's true that economists across the ideological spectrum (including Krugman) opposed the Euro based on the theory of optimum currency areas developed by Robert Mundell.

    On the other hand, Robert Mundell himself was a big supporter of the Euro. So I don't think economists can claim complete vindication on this one.

  4. Yeah, Gene, I agree with Blackadder. I do not at all claim to be familiar with the actual history, but off the top of my head, I would have guessed that the euro was literally designed by economists, and that there were a few big ones who were totally behind it.

    So I think what you have done in this post is somewhat like saying, "Economists from Krugman to Sumner agree that the economy needs more demand stimulus. This is an area where there is widespread agreement."

    I mean, maybe that's true, but it's not what the critic of economics has in mind. He means it the same way very few physicists will doubt the Heisenberg uncertainty principle.


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