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Economists and their theories

GB Geo-Blog

Economists and their theories

It often has been said that you can never find a one-handed economist. Well, this is not really the case.

Consider the current economic environment. There are many economists who are concerned about the sustainability of the recovery, and as a result, they are recommending another round of fiscal stimulus, despite the massive budget deficits.

There is another group who fear that the stimulus to date, and the ensuing deficits have sown the seeds for another recession. This group recommends that governments begin to reduce spending and strive for balanced budgets as soon as possible.

It is interesting how these two groups, with supposedly similar education and training, access to the same data sources, and the use of similar empirical tools can reach diametrically different conclusions. But it doesn’t stop here.

We also find many economists who are terrified that the measures implemented by central banks, and especially the U.S. Federal Reserve, will produce an inflation bubble. On the other hand, there are other economists who are more concerned that without further monetary and fiscal stimulus a number of major countries will experience a devastating period of deflation.

Again, same data, similar training, yet dramatically different conclusions. Why?

Despite the fantasies of economists that their models and mathematics make their field a science; the reality is that economics remains more an art form. As an art form, the theories reflect the inherent biases of the creators of the theories. Indeed, theories are just a collection of assumptions, and as every good economist knows, the assumptions preordain the conclusions. Further, as every economist who is adept at econometrics knows, one can play around with data sets, time periods and assumptions to produce almost any result one desires.

So we end up with one-hand economists. In fact, all economists are one-handed because their work reflects their political and ideological biases. Why the differences of opinions at this time? Because we have liberal economists and conservative economists. We have economists who favor government intervention, and we have others who prefer a minimalist role for governments.


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