Piercing the policy bubble

By Fester:

The bubble of Very Serious People who are behind trend at best and wrong as a norm, but consistently wrong in the elite consensus direction is strong. I mentioned this effect on national security policy earlier this week, but that thought was prompted by the legitimate complaint that the Obama Administration is staffed by economists who are competent (which is a massive improvement) but who also got a good chunk of this decade wrong as well, even though there are plenty of ideologically friendly economists who knew that something extraordinarily funky has been happening in the American economy for the past decade. Those economists are well credentialled with multiple Nobels between them, and also "got" the housing bubble and speculative bubbles much earlier than the mainstream consensus.

Here is Paul Krugman in July on this issue:

But the larger story is the absence of a progressive-economist wing. A lot of people supported Obama over Clinton in the primaries because they thought Clinton would bring back the Rubin team; and what Obama has done is � bring back the Rubin team. Even the advisory council, which is supposed to bring in skeptical views, does so by bringing in, um, Marty Feldstein.

The point is that even if you think the leftish wing of economics doesn�t have all the answers, you�d expect some people from that wing to be at the table. Yet I don�t see Larry Mishel, or Jamie Galbraith � Jared Bernstein is it.

Joe Stiglitz stands out because in addition to being on the progressive wing, he�s also, as I said, a giant among academic economists. But I think the real story is more about excluded points of view than excluded people.

Hopefully the economic policy bubble is getting a little weaker, as Brad Setser has been hired by the National Economics Council.  I have no idea what Brad�s personal politics are, but his viewpoint and argument is a very valuable one to have on the table.  He has been arguing that the US economy has been fundamentally imbalanced for a while and the re-balancing act is going to be an ass-kicker.  Let me give him his own words to voice his view better than I have:

Fundamentally this blog was about an issue � the United States� trade deficit, the offsetting trade surpluses in other parts of the world and the capital flows that made this sustained �imbalance� possible. Most of my early blog posts argued, in one way or another, that taking on external debt to finance a housing and consumption boom wasn�t the best of ideas. Even if (or especially if) the deficit was financed by governments rather than private markets.

Getting new views, especially views that have a recent history of being prescient and relevant into the policy discussion is a good (and basic) idea.  Good luck Brad in your new job.