Why macroeconomics 'gives economics a bad name' Add to ...

In the course of a long conversation, Columbia economics professor Jagdish Bhagwati remarked the other day on his fellow practitioners' remarkably wide range of assured opinions on everything from Federal Reserve policies (he likes them) and European bailouts (which have been botched) to Chinese currency manipulation.

"In my judgment, macroeconomics is what gives economics a bad name. You don't get that kind of variance - totally opposed points of view - in fields like public finance or trade. Consensus is never there, but the disagreements are always reasonable within certain parameters."

He uses the furor over China's exchange rate policy as an example: "When you see such a variety of [expert]opinions, you would have to have some chutzpa to say: 'I know exactly by how much this exchange rate is undervalued.' "

Unfortunately, there is no shortage of supply, when it comes to chutzpa in the economics world.

Take this example, which did not come from Prof. Bhagwati: Two young academics, Olivier Coibion (College of William and Mary) and Yuri Gorodnichenko (University of California, Berkeley) remain wedded to the utterly discredited Great Moderation theory ardently advanced by the likes of Fed chairman Ben Bernanke as recently as four years ago.

This is the idea that, thanks to market liberalization and sound central bank policies, modern economies are typically characterized by long periods of steady growth, only briefly punctuated by mild recessions.

Then, along came the Great Financial Disaster of 2008-09, surely consigning the Great Moderation to the overflowing dustbin of bad economic ideas. Well, apparently not, if you have invested a great deal of time and effort in its study.

To explain away the worst financial and economic crisis since the Great Depression, our two industrious assistant profs have concluded that the whole thing was merely "a transitory volatility blip."