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The War of Economists

by Robert Misik Wednesday, Jun. 06, 2012 at 4:11 AM

"A seeming consensus among economists can virtually force the shaping of political opinions.. For 30 years, neoliberalism marginalized all other schools, above all Keynesianism - and all of us hit a brick wall.."


By Robert Misik

[This article published in: Freitag 5/27/2012 is translated from the German on the Internet, http://www.freitag.de/politik/1221-der-konomen-krieg.
Robert Misik is an Austrian journalist and writer.]

Economics broke down in the crisis. Since certainties are lacking, politics cannot rely on economics any more.

According to an old joke, economics is that discipline in which two researchers receive the Nobel Prize for discovering the exact opposite. In other words, economics is that discipline where what is right every year is the opposite of what was right the year before. This distinguishes the economy from the exact sciences like physics, chemistry and mathematics but not unconditionally from other human- and social sciences like sociology and philosophy. Sociology and philosophy do not have the same direct influence on politics.

Economists tell politics what is “true” economic policy. A seeming consensus among economists can virtually force the shaping of political opinions. This means the struggle around the hegemony of conservative or progressive world interpretations is fought out today in the field of economic theory.


Up to 2008 and the outbreak of the financial crisis, “neoliberalism” was dominant for 30 years. “Neoliberalism” is a somewhat vague auxiliary term. The word meant something very different 40 years ago, namely the economic theory behind the “social market economy.” Today the term stands for total market gullibility. The school of market fundamentalist economists is divided in different schools: the neo-classicists and fans of Milton Friedman and his successors, the school of “rational expectations” and the “Austrians,” the descendants of the Austrian school around Friedrich von Hayek. For 30 years, neoliberalism marginalized all other schools, above all Keynesianism – and all of us hit a brick wall.

With the financial crisis, Keynesianism first experienced a new high-altitude flight and was even dominant for several months. The power of facts stands behind the Renaissance – the fact that market radicals can not formulate any answers. Some leading “stars” in the economy have regularly fought the battle over dominance. Nobel Prize winner for economics Paul Krugman blogs daily on the website of the New York Times and writes a column two times a week. In 2009 he wrote the controversial essay “How Did Economists Get It So Wrong?” The essay was a challenge. On his side are people like the Nobel Prize winner Joseph Stiglitz and the Boston professor and economic blogger Bradford DeLong.


Since then a war of academic economists has been raging. Since the economy distinguishes between the analysis of massive national economic streams (“macro” economy) and the little operational studies of specific branches (“micro”), people in the US speak of the “macro-war” or the “macro-economy war.” The question was recently raised whether Krugman and his supporters have already lost their “macro-war.” In 2010 the brief Keynesian dominance collapsed. After the great disaster was averted, bank bailouts, unemployment, massive business bankruptcies and “state debts” were suddenly in the center of attention, not the crash of growth. In Europe with its euro crisis and threatening state bankruptcies, the public budgets and their deficits suddenly were the exclusive theme. Conservative economists and experts hit back.

“Did Krugman’s rebellion fail?” the economic blogger “Noahpinion” asks. He insinuates: “Yes, doubtlessly but a new paradigm may gain acceptance in the economy from a long-term perspective. Krugman replies the opposite side is prevented from prevailing on all fields. This also has short-term effects – as in the distinction between an unemployment rate of seven or nine percent. Krugman is convinced: “We will win the fight.”


A few things are already remarkable. Firstly, there is a worldview argument in economic theory between progressive and conservative economists that seldom occurs on the often de-ideological field of politics. Secondly, the change from neoliberal dominance to the rise of Keynesianism and to the organized dissensus that we now experience is a beautiful illustrative example how ideas spread and gain acceptance and how hegemony and consensus arise.

In a new study, the political scientist Henry Farrell and the economist John Quiggin document the global argument in the economists’ guild. They present several remarkable systemic reflections on how “ideas” of “experts” develop to a “seeming consensus” in an academic discipline and how this consensus then influences politics. Ideas and power are emphasized here.

When a certain idea – like “neoclassicism” or the theory of “rational expectations” in the economy – is dominant, dominance does not mean that everyone believes in this idea. Dominance means that the followers of this theory dominate important academic institutions and think tanks and that the remaining adherents of rival theories duck and keep their mouths shut. Whoever does not shut up is made to appear as an outsider of the discipline who need not be taken seriously. On the other hand, the followers of the dominant idea set the tone in the general public. For interested laity or politics, there seems to be a consensus among the experts.

However there is only a “seeming consensus,” a “visible dominance” as Farrell and Quiggin explain which doesn’t mean that there isn’t invisible dissensus. But “the appearance of consensus among experts is very important in manipulating the ideas of political actors.” To cut a long story short, hegemony and dominance are only possible when there is the “appearance of consensus.”

Unexpected events to which the adherents of the dominant theory have no answer can endanger this dominance. In this case, a rival idea can be heard and spread. The authors introduce metaphors from epidemiology: new ideas can “infect” others. In communicative networks, there are junctions – “media stars,” important economists – who are connected with many others and can accelerate the “infection.” The spread of new ideas is a game of conviction, new discoveries, prayer-wheel repetition, and spectacular change of sides, imitation and parroting. Against the newly widespread idea, the adherents of the previously dominant idea attempt a policy of containment as with anti-epidemic programs.


Despite these defensive efforts, even powerful institutions that were bulwarks of the dominant idea in the past can be infected. For example, the International Monetary Fund (IMF) and the OECD changed their positions significantly in the last years. Even the past champions of the “more market-less state” ideology are now astounded by studies showing that crass inequality is the source of all problems of the market economy.

That the global anti-Keynesian backlash after 2010 came from Europe – from the executive floors of the European Central Bank, the executive floors of the German Central Bank, the German political elites and even the new British government – is remarkable. In the US, on the other hand, conservative economists have long not regained the standing they had before the crisis.

After we had a neoconservative dominance in the past 30 years and then a brief spring of Keynesianism, we are now in a time without “apparent consensus.” For the foreseeable future, we must adapt to dissensus. Since “the appearance of consensus” is absent, the prerequisite for a specific school of economics manipulating politics is also lacking. As a result, we must adjust for economic crisis years and for an epoch of “indissoluble tensions between different and diametrically opposite ideas on the order of the economy, for confusion and trench-warfare.” Therefore economic “expertise” is only restrictedly fit to legitimate politics.


Altvater, Elmar, “In the Towrope of the Financial Markets,” November 2010

Krugman, Paul, “This Republican Economy,” June 3, 2012

Misik, Robert, “Economy and Ethics in Crisis,” 2011
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