[Viewpoint] Economics is at a crossroadsThe Nobel Prize in Economic Sciences this year went to two American economists - Thomas Sargent of New York University and Christopher Sims of Princeton University. The winners were honored for “their empirical research on cause and effect in the macroeconomy.” But they may not enjoy the same warm applause from the economic community and from the greater public around the world.
The annual prizes in physics, chemistry and medicine are backed by the laureates’ palpable contributions to mankind. The prizes in peace and literature draw broad consensus to some extent. But what the two laureates in economics contributed to the world - developing essential tools in macroeconomic analysis to employ in government policies - make everyday people who do not have any basic knowledge of economics scratch their heads.
We do not know how stunning their methods may be, but the world economy has slipped deeper into a fiscal mess and has more frequently experienced financial crises and recessions. Regardless of their analytical suggestions on permanent and temporary changes in economic policies, governments and central banks around the world today are battling helplessly with a terrible economic atmosphere as well as interest rate risks.
Economists failed to predict the Asian financial crisis of 1997 and the global financial meltdown of 2008 as well as the simmering credit crisis in Europe. They also have not been helpful in offering solutions to fight the crises. Different factions have presented different analyses and prescriptions.
The laureates may be authoritative among their colleagues, but they are so far apart in views and answers that we have to wonder if they are scientists of the same field. They clash vehemently over how to address the debt crisis in the United States and Europe. Laureates of the Keynesian school - Paul Krugman of 2008, Joseph Stiglitz of 2001 and Peter Diamond of 2010 - urge more spending to restore the economy and consumer confidence instead of belt-tightening to reduce the deficit.
But 1995’s Robert Lucas, this year’s Sargent, and New Keynesian economist Gregory Mankiw oppose stimulus packages and loose monetary policy and instead propose broad austerity and restructuring for the major economies. Economists from different schools - “saltwater” schools referring to Harvard, MIT and Columbia and the “freshwater” schools of the University of Chicago and the University of Rochester - are at war, flooding the media with mixed signs and commentary and further confounding investors and analysts.
The crises in Europe and the United States are deepening because of poor leadership and decision making by governments and politicians. But we can hardly expect political leaders to come up with solutions and push them with conviction when even the brightest economists cannot come to agreement on addressing today’s problems. Worse, many of the influential economists are guided by their politics more than academic and scientific conviction. Saltwater economists uphold policies of Democrats while freshwater economists advocate those of Republicans. The economic dichotomy turns into political debate and wrangling instead of a serious exchange of opinions for the public interest.
If economists can only offer mere asymmetries of florid yet meaningless annotations, their services may no longer be needed. Some even may propose to scrap the Nobel in economic science. Economists should ponder why Nobel prizes are not given out in the political field.
While economists are engrossed in high-flown debate, citizens and young students frustrated with waiting for a breakthrough in business and jobs rushed to Manhattan streets to decry the superrich who remain in luxury after Wall Street was bailed out. Liberal economists like Krugman and Stiglitz have jumped on the bandwagon instead of sticking to hard reasoning. It is as Stiglitz once lamented, “There ought to be a crisis in economics.”
Economics is a practical science. It is a study of the real world. But it has been too detached from the real world and primarily engrossed with numbers and models. In contrast, economists have been too deeply involved in the real world, often serving as mouthpieces for government policies or political campaigns. Economics is at a crossroads. It is up to the economists to prove their aptness as well the necessity of economics as a field of study.
*The writer is an editorial writer of the JoongAng Ilbo.
By Kim Jong-soo