1. NS3040 Summer Term 2018 Defense of the Dismal Science
Federal Reserve Bank of Chicago, Strong Dollar Weak Dollar

2. Overview
Greg Ip, In Defense of the Dismal Science, Wall Street Journal, August 25, 2017
Main points
Economists often present results that are unpopular with either politicians or the general public
Rather than confront economists with the facts, tendency has been to discredit their findings
More than 40% Americans completely or partially mistrust federal economic data
Tendency to ascribe findings to “fake news.”

3. Mistrust of Economists I
Reasons for mistrust
Failure to predict global financial crisis of
Tendency to reduce all human motivations and behavior to quantifiable variables such as utility, welfare, and income.
People not by nature quantitative – motives often have no economic basis
Today’s most divisive issues:
Fairness and inequality
National identity and culture
Don’t have economic solutions

4. Mistrust of Economists II
When economists stress merits of globalization, market solutions or cost-benefit analysis
Critics on left accuse them of being paid by corporations with no moral anchor
Critics on right accuse them of being global elites who despise patriotism
Discipline emerged in England in 1700s, but main breakthroughs have been met by skepticism
Adam Smith -- free markets, invisible hand
Leads to capitalist abuses
David Ricardo – comparative advantage
Leads to vulnerability to external factors
J.M. Keynes – depression economics
Leads to socialism, state control

5. Assessment Economics similar to medicine
Economists did not predict financial collapse
Doctors often do not predict death
Both pretty good at dealing with crisis once it develops.
Economists skeptical of simple explanations
Tend to look for equilibrium
When change one thing how will other things adjust
Minimum wage good example as are tariffs on imports
Both lead to counter intuitive results once move beyond the immediate impact