In 2011, Mitt Romney’s Presidential campaign was asked what immediate actions he would have taken to deal with the 2008-09 economic crisis. The response was ripped from the Real Business Cycle playbook: “Lowering the corporate tax rate. Enacting a permanent extension of the 2001 and 2003 tax cuts. Immediately ratifying our pending trade agreements with Columbia, Panama and South Korea. In the energy sector, freeing up the necessary land to enable greater domestic production.” (Robert Draper (2011), p.41.) Economists who are skilled at real-world macro stabilization understand that those actions would have been woefully inadequate to the task of halting and reversing the 2008-09 contraction of aggregate demand. From my own experience, especially at the Fed during the crisis, I am convinced that the tepid, misdirected, untimely policy response offered by the Romney campaign would have made a 1930s-class depression the most likely outcome. I am not alone. Ben Bernanke is firmly on the record about the necessity, in such circumstances, of massive, rapid intervention in total spending. The GEM Project makes clear that Romney’s program, if it had been relied upon, would have been catastrophic.
Of course, nothing so far tells us much about Mitt Romney himself. Who knows how he would have behaved and to whom he would have listened had he actually confronted the 2008-09 extreme instability from the oval office? The 2011 answer from his campaign, however, does vividly illustrate a more general issue, i.e., the role of mainstream macro thinking in defining broadly accepted boundaries of what is sensible in public debate. The Romney campaign did not want to generate any controversy in their response to a one-off question that would have little to do with the 2012 election. They wanted a safe answer. And the one they provided was safely consistent with the writing and teaching of the leading, Nobel-Prize-winning macroeconomists from the conservative wing of the academy.
Conservative or not, facts are facts. The fact is that the campaign answer was extremely foolish. It would have been the object of scorn in the academy if the profession were still organized by Early Keynesians. In those circumstances, the 2011 answer would not have been safe and would not have been given. The prospect of broad rejection by leading macroeconomists would have produced a markedly different response from any electable politician. More sensible guidelines about what is sense and nonsense in the 2011-12 stabilization-policy debate would have spared the rest of us the embarrassing spectacle of watching every contender for the Republican nomination for President fight over who would be the quickest to fire Ben Bernanke.
The problem, of course, is not new. In one of the most famous passages in The General Theory, Keynes argued that “… the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else.” Today’s gatekeepers of the macroeconomics that is acceptable in the academy have a heavy burden. It is time, while memory of the global macro crisis is still fresh, for a careful look at the competency with which that responsibility is being executed. It is time to stop systematically ignoring crucial evidence and construct a consensus theory that is both coherent and stabilization-relevant. It is time for our leading macroeconomists to remember that macroeconomics matters.
The economic mainstream matters well beyond the academy and must be organized to the highest standards of public responsibility. That this obligation has been, for a prolonged period, ignored by mainstream macro theorists is a sorry state of affairs. It is past time for the modern gatekeepers of the profession, to face up to their larger responsibilities.
Blog Type: Policy/Topical Saint Joseph, Michigan