The news today is not good and you might want to go to the end and get the music segment rolling before coming back to the start to read the rest. The newly appointment of Alan Krueger to the Chair of the US President’s Council of Economic Advisors (CEA) has been widely applauded. Somehow the press think that he might actually change the course of policy and provide for a resurgence of employment. If you examine his early academic work you realise he has a concern for low-pay workers that many mainstream economists eschew. But he hasn’t published anything substantial in macroeconomics or banking. His recent macroeconomics commentary is not encouraging. My conclusion is that the new ew CEA head falls well short of the (macro) mark.

Everywhere I look I find examples of politicians and leading lights making macroeconomic statements without understanding macroeconomics. Given that these statements have policy implications that impact on real people making such erroneous statements – no matter how well-intentioned one is – is a dangerous thing that we should avoid. Imagine if I suddenly started to make claims about the strength of bridges such that they would fall down if my advice was taken. There would be a law against that. One notable economist apparently thinks that macroeconomics is not “regular economics” – but rather some far-fetched misplaced set of ideas that would be better forgotten. My view is different. A correctly specified macroeconomics provides a safeguard against falling into logical traps – such as the fallacy of composition. The so-called “regular economics” is a fantasy world where the angels on the pinheads are assumed away into one representative angel who knows all and never makes a mistake (on average). If you want to understand how mass unemployment arises and how it is solved then the mainstream version of “regular economics” will leave you in the dark.

I know it is fashionable these days, particularly on the left to claim that class is dead – that its not about class any more – that left-right is dead – etc. But there was an interesting Bloomberg article (August 29, 2011) – Give Karl Marx a Chance to Save the World Economy – by one George Magnus, who is listed as a senior economic adviser at UBS Investment Bank. Confused? Why would a banker invoke the thoughts of the long-dead and usually vilified (by bankers) philosopher? For me it is always a normal part of thinking to go back to Marx because his dissection of capitalism – the sources of profits and the importance of seeing beyond the superficial exchange relations and thus understanding class relations embedded in production – has not, in my view, been bettered. And now a banker is suggesting that need to read Karl Marx.

Many people have drawn to my attention in recent weeks the evolution of the Modern Monetary Theory (MMT) Wikipedia entry and raised concern about the criticisms that are now on that site. I thought I better go and read the entry. I certainly have not added material to the site. Having said that I am happy that there is a page available. It seems that the criticisms cited are sourced to blogs by an Austrian Schooler, a graduate student blogger, and Brad DeLong. There does not appear to be an sound academic citation. The critics actually admit to basing their views on a cursory reading of the MMT literature and then only on the blogs that are out there now (including this one). The major claim is that MMT is just an accounting tautology. That just means they have read the first of hundreds of pages of MMT and then probably haven’t really grasped its significance. MMT is in fact an accounting-consistent, operationally-sound theoretical approach to understanding the way fiat monetary systems work and how policy changes are likely to play out.

I was reading an interesting study the other day that helps us understand why the macroeconomic policy debate is so awry at present. The paper – Cognitive dissonance, the Global Financial Crisis and the discipline of economics – by Adam Kessler an economist at a Florida university demonstrates that the mainstream economists who are highly influential in the current policy debate suffer from “cognitive dissonance” which leaves them in denial of the facts. CD leads to dysfunctional opinions and if these opinions carry weight in the public debate the policies implemented are also likely to be dysfunctional. It is a sad testimony that the mainstream of my profession is largely operating in a parallel universe but bringing their crazy ideas to our universe and pressuring governments to follow policies that damage a vast majority of people. One thing that is clear – the majority of these economists never have to carry the costs of their denial and retire on nice pensions. The same cannot be said for the victims of their arrogance and denial.