British House of Lords inquiry into the Bank of England’s performance is a confusing array of contrary notions
On November 27, 2023, the Economic Affairs Committee of the British House of Lords completed…
Everybody is concerned with ‘herd immunity’ at present as the pandemic continues on ravaging our social and economic lives. But I have been studying the concept of ‘herd mentality’ for some years, aka – Groupthink. Mainstream macroeconomics is sustained, not by any internal logical consistency (on which it fails), by close congruency with the empirical data (on which it fails), which are the usual qualities of a dominant system of ideas, but, rather, by (using modern terminology) its long-standing and on-going cancel culture. So it is rather amusing to read one of the leading voices in that paradigm, Kenneth ‘Spreadsheet’ Rogoff, whinging on the Internet that ‘cancel culture’ is being used to undermine the reputations of one of his mates (Larry Summers). Both continue to get platforms in the world media without trouble to push their vapid ideas into the narrative. The antithesis of cancel culture it would seem. What is going on is that more people are realising that the prognostications of mainstream macroeconomics are deeply flawed, and, while many may not know the technicalities and the theoretical complexities, they can see the empirical dissonance, and that means they know a – lemon – when they see one. And social media has given more people a voice and they are using that to call these characters out for what they are. And the sense of invulnerability that pervades all disciplines riddled with Groupthink is being questioned.
I wrote about my view on ‘cancel culture’ in this blog post – Be careful of what parades as academic research (Uber) (January 29, 2020).
In general, I do not like the social media phenomenon which is typically a sign of intolerance.
I consider that education is the path to a more enlightened, tolerant and inclusive society.
I particularly dislike progressive commentators publicly shaming others for being racist, sexist, mysoginist, anti-semitic, transphobic and more when the evidence is to the contrary.
I think there are valid criticisms of the Israeli government, for example and the illegal occupations that they Zionist settlers have imposed on the Palestinean people.
I don’t think that makes the person who makes those critical arguments anti-semitic.
I don’t think a person is always intrinsically transphobic, if they question the ‘fairness’ in sporting events, where biological males, who identify as females seek to make reputations by competing in those sporting events, where success is considerably influenced by physical strength and the fields are typically limited to biological females
Such a person might transphobic but the meagre point of raising the issue doesn’t immediately qualify for them status and disqualify their opinion or evaluation.
I understand the complexity of these issues and the need for respect for everyone and I think the ‘cancel culture’ tendency is the anathema of that.
My view is that education should be our guiding light and the cancel culture is bound to reveal its hypocritical tendency because at times we are assuredly better off being forgiving and adopting pragmatic strategies.
But, of course, there is a clear difference between healthy criticism and debate and ‘cancelling’ a person outright for their views.
I too often see on social media that difference being blurred with vilification becoming the way of defending a position under attack, because it becomes easier to be abusive than to construct knowledge-driven arguments as riposte.
And it is clear that mainstream economists are being subjected to healthy criticism from more and more commentators, who, as I noted in the introduction, are becoming more erudite on economic matters, and are increasingly seeing that the predictions of mainstream macroeconomists bear little congruence with the real world events.
They are becoming sick of mainstream economists claiming that fiscal deficits, which clearly help people protect jobs and incomes etc, are dangerous and drive up interest rates and cause inflation.
They are becoming sick of mainstream economists claiming that when central banks buy government debt and thus control bond market yields (taking away any influence of the private bond investors, who have motives not usually linked to advancing general well-being), accelerating inflation will result and morph, at some point into hyperinflation.
The data doesn’t show that. People see the data and put two and two together.
They are becoming sick of mainstream economists claiming that bond market investors will stop funding governments and render them insolvent when it is clear the queues to get access to public debt (as corporate welfare) are long and showing no signs of drying up.
They are becoming sick of mainstream economists claiming that saying that governments cannot afford to provide provide proper health care or proper employment support or addressing climate change or anything else that helps the most of us, when the same economists are silent or supportive when government bails out corrupt banks or hands massive tax breaks to the top-end of the income distribution.
That dissonance is now manifesting as widespread criticism of economists who have rarely been questioned such is the position they have created in the public debate for themselves.
But now those economists, who more recently have been railing against the size of fiscal support being given by the US government – when there are something like 8.2 million jobs short of where they were in February 2020 (see my latest US labour market assessment – US labour market goes backwards with mixed signals – but significant slack remains) – are being criticised for their ‘conservative’ views.
I wrote a bit about that issue in this blog post – The inflation mania is growing – but manias are manias.
More specifically, I addressed the sort of claims that Lawrence Summers and Kenneth Rogoff have been making about inflation fears in this two-part series:
1. Is the $US900 billion stimulus in the US likely to overheat the economy – Part 1? (December 30, 2020).
2. Is the $US900 billion stimulus in the US likely to overheat the economy – Part 2? (December 31, 2020).
It seems that Rogoff and Summers are feeling the heat as a result of the mounting criticisms of them, particularly from commentators who might identify as being progressive and Democrat, which excludes many of those who identify as being Democrat supporters in the US.
Rogoff, retains a global platform in the media, despite his role in the Reinhardt-Rogoff spreadsheet scandal during the GFC.
During the GFC they produced ‘analysis’ that suggested that there was an 80 per cent threshold for “safe” public debt ratios and once the ratios went above that level, growth suffered and insolvency threatened.
They received massive press coverage for their ‘threshold’, given that mainstream macroeconomists can always command a widespread platform in the media and political process.
Journalists kept repeating their stupid mantra ‘this time is different’ (title of their book) without critical scrutiny, which is another aspect of the platform these economists enjoy.
Rogoff and Reinhardt claimed during the GFC that “austerity is necessary” because the rise in deficits and government debt would create dangerous insolvency and inflationary consequences.
They said that “the overall debt problem facing advanced economies today is difficult to overstate”.
Nine or so years later their predictions have been revealed to be plain wrong.
And, eventually, their ‘analysis’ was exposed as being either incompetent or fraudulent (who knows) because the spreadsheet they had based their claims had been wrongly manipulated (presumably by a research assistant).
When the available data was used correctly, their threshold results lapsed.
Further, the causality between debt ratios and growth could run either way but the evidence suggests that it runs from real GDP changes to changes in public debt ratios.
The furore over the Rogoff and Reinhardt work was not really about their spreadsheet incompetence but the direction of causality.
Any reasonable person came to understand that the meltdown in 2008 was not a public debt event.
It was a collapse in confidence that led to a spending withdrawal that cause real GDP to decline sharply.
This was followed by the imposition of fiscal austerity in most nations which further dented growth. The rise in the deficits and, under the current institutional arrangements, the rise in debt issuance, saw public debt ratios grow rapidly.
I wrote about his work with Reinhardt in this blog post – More worn out ideological prattle from R&R (November 21, 2013).
Given the massive failure of their predictions, one wonders why characters like Kenneth Rogoff still commands a public platform.
But they consider they are largely invulnerable to scrutiny.
Think about Summers and his role, with Robert Rubin and Alan Greenspan during the period before the GFC and the demonisation of Brooksley Born, who became the head of the US federal Commodity Futures Trading Commission and tried to warn the US government of the increasing dangers of unregulated financial markets.
I wrote about that in this blog post – Being shamed and disgraced is not enough (December 18, 2009).
Now, as their views are being increasingly scrutinised in the public arena, they don’t like it.
Rogoff told Politico’s West Wing Playbook that (Source):
… it’s very courageous of him to make … [his arguments] … in this world where there’s this, basically, cancel culture, and there are plenty of people who probably want to do that to Larry.
The West Wing Playbook suggests that Summers is used to criticism but now his world is difference because:
… he’s enduring it while outside the circles of power and not within them is a sign of how far economic policy-making has shifted since the Obama administration.
They also suggest that the Biden Administration “is also chock-full of Summers critics-economists who believe that decades of Democratic economic policy that failed to address wage stagnation, outsourcing and rising inequality led to the rise of DONALD TRUMP.”
The response of Rogoff is possibly because neither he nor Summers are part of the Biden Administration, but their presence in the official policy making arena would probably not alter policies much, given how weak the Biden camp has been on fiscal policy to date – reneging on key promises etc.
The real issue is the complete denial from the mainstream macroeconomists of the reality they operate within.
They have created such a fictional world that they believe they are insulated from criticism.
I have written several blog posts (and articles/books) about the phenomenon identified by social psychologists called – Groupthink.
He refined the term that US sociologist – William H. Whyte – coined in 1952.
Irving Janis extended a lot of the ideas from his 1972 paper in his 1982 book – Groupthink : psychological studies of policy decisions and fiascoes – published by Houghton Mifflin, Boston.
The concept is very applicable to the economics discipline and the way the academy operates in this area of study.
Cancel culture is the norm within this discipline.
The dominant professors control the evolution of the ideas in many ways.
Examination processes militate against any critical views by students.
Scholarships to graduate studies are then highly biased towards those who have ‘done well’ in the undergraduate examination.
Then appointments to the lower jobs in the academy are highly controlled and a certain type of graduate typically gets a job.
Then promotion is tightly controlled according to the type of publications one produces and the rankings of the journals they are published in. These rankings are highly controlled and vet out heterodox publications from the higher (and more valuable) ranks.
The professorial appointments are tightly controlled.
The competitive research grant process is tightly controlled to restrict money flowing to research projects that might be too ‘challenging’ for the mainstream viewpoint.
Then access into influential policy jobs in central banks and treasury departments become highly biased towards perpetuating the mainstream viewpoint.
This is really ‘cancel culture’.
There were very few people with my views who made it through graduate school and then went on to reach the top of the hierarchy.
I was only able to get through because I was technically competent (maths, mathematical stats, econometrics) which meant I could do technical work that attracted a lot of research funds without having to actually ever publish anything remotely mainstream.
It also meant as an undergraduate and postgraduate I could solve their ‘meaningless’ puzzles easy to get top examination grades.
But that path is an anomaly.
Further, access to the media is highly constrained and journalists typically just rehearse the views of the top end of the mainstream academy giving them global voices on a daily basis.
The platform they enjoy is amazing and journalists rarely subject them to critical scrutiny.
Has any journalist ever asked Rogoff whether he checked the spreadsheet that led to the scandalous and incorrect claims about public debt thresholds?
Has any journalist ever asked them to account for the massive empirical dissonance between the main predictions of New Keynesian macroeconomists and the empirical history we all have experienced?
The norm is that despite major failures in prediction, these characters just retain their voice and are wheeled out as experts on the next issue that commands the public attention – at present inflation.
Have any of them been forced to explain why Japan has had no accelerating inflation despite the Bank of Japan purchasing most of the public debt issued over the last 20 years?
Have they been forced to explain why bond yields are negative around the world when their macroeconomic framework predicted rising yields?
The privilege these characters enjoy as public celebrities and the voice they can express without scrutiny is massive.
I am regularly told by journalists that they have to ‘ration’ my access to radio and TV because they get criticised for having me on by politicians and other economists.
The Groupthink that protects them has given them an ‘illusion of invulnerability’ where according to Irving Janus, group members deny basic facts that refute their views.
They create group rationalisations of any ‘failures’.
US Marxist economist David Gordon noted in his 1972 book Theories of poverty and underemployment; orthodox, radical, and dual labor market perspectives (Lexington Books) – how orthodoxy keeps reinventing itself when confronted with an anomaly that exposes the theoretical structure to rejection.
They vilify critics and call them ‘crazy’, ‘socialist’, etc.
This sense of invulnerability is what allows Rogoff to create a narrative that he and Summers are the victims rather than the millions of workers who have been forced into unemployment by the sort of austerity-biased policies that New Keynesian macroeconomists have promoted.
Irving Janus writes (p.84):
The symptoms of groupthink arise when the members of decision-making groups become motivated to avoid being too harsh in their judgements of their leaders’ or their colleagues’ ideas.
This is the problem of “concurrence-seeking” which:
… tends to override realistic appraisal of alternative courses of action.
Those captured by Groupthink also take on a sort of moral superiority.
Irving Janus noted that:
Victims of groupthink believe unquestionably in the inherent morality of their ingroup: this belief inclines the members to ignore the ethical and moral consequences of their decisions.
Go back to my comments above on mass unemployment.
It is also behind Rogoff trying to deflect criticism by claiming that ‘cancel culture’ is attacking a “courageous” Lawrence Summers and these critics are hiding behind social media anonymity etc – these ‘cowards’ are attacking courage.
Rogoff is also serving a role identified by Irving Janus as a “mindguard”.
Victims of groupthink sometimes appoint themselves as mindguards to protect the leader and fellow members from adverse information that might break the complacency they shared about the effectiveness and morality of past decisions.
Mindguards are there to enforce conformity and disabuse anyone of questioning viewpoints.
Given that the dominance of mainstream macroeconomics is maintained in part by a sort of cancel culture, it is quite amusing that Rogoff would resist the mounting criticism by appealing to the same concept.
His sense of being victimised is ludicrous.
He is just displaying all the characterisations of being caught in a groupthink bubble and that usually means the group has become dysfunctional and dangerous.
That is enough for today!
(c) Copyright 2021 William Mitchell. All Rights Reserved.