John Cochrane published an article a few weeks back on The Failure of Macroeconomics which you tend not to see much of even though its failures are manifest and undeniable. Here is the first para of his article which refers to the US but the story is hardly better anywhere else:
Output per capita fell almost 10 percentage points below trend in the 2008 recession. It has since grown at less than 1.5%, and lost more ground relative to trend. Cumulative losses are many trillions of dollars, and growing. And the latest GDP report disappoints again, declining in the first quarter.
He is down on Keynes and Keynesian theory but his analogy is sus to me. If I read him right, he is saying that climate science is all right because it is using modern evidence unlike macroeconomics. Anyway, he writes:
The climate policy establishment also wants to spend trillions of dollars, and cites scientific literature, imperfect and contentious as that literature may be. Imagine how much less persuasive they would be if they instead denied published climate science since 1975 and bemoaned climate models’ “haze of equations”; if they told us to go back to the complex writings of a weather guru from the 1930s Dustbowl, as they interpret his writings. That’s the current argument for fiscal stimulus.
I take it that the “guru from the 1930s Dustbowl” is Keynes. I suppose then that Cochrane wouldn’t like to go back to my own set of authorities which are the economists of the mid-nineteenth century, John Stuart Mill in particular. But whether he knows it or not, that is what he’s doing in pushing structural reforms while abandoning attempts to increase aggregate demand:
These views are a lot less sexy than a unicausal “demand,” fixable by simple, magic-bullet policies. They require us to do the hard work of fixing the things we all agree need fixing: our tax code, our cronyist regulatory state, our welter of anticompetitive and anti-innovative protections, education, immigration, social program disincentives, and so on. They require “structural reform,” not “stimulus,” in policy lingo.
Economists once knew this, since that was the core element of what an economist knew that had been passed down through the first century of economic thinking, starting from Adam Smith in 1776. Yet even though Cochrane can see there are problems with a stimulus, I don’t myself think he really gets it himself since it never occurs to him to suggest that cutting the level of public spending might actually do some good.
[My thanks to J.B. for sending this article along.]