Surveys have consistently shown that support for free trade is the only issue upon which economists are in near unanimous agreement. A majority of economists favour abolishing minimum wages, but the agreement on this is less strong than on international trade. On all other issues, there is much disagreement, even over the application of basic principles such as supply and demand to controversial issues (e.g. illicit drugs).
This wide divergence of views makes it easy for governments to pick and choose economists who provide the advice that they want to hear. And so it is with the present economic troubles. Politicians all over the world have been promising to rescue us from another Great Depression, using Keynesian economists as apologists for pork-barrelling schemes that increase their influence.
A crisis, of course, is the perfect time for elites to bamboozle the public. Politicians are able to trot out ways to spend taxpayer money that they had to discard as politically unfeasible during the good times. Prime Minister Kevin Rudd, for example, has been able to get away with a large number of new projects in marginal electorates. In the process, he has blown a massive budget surplus and turned it into an expected deficit. All the lavish appropriations have been justified by saying, it must be done to stimulate the economy and avert a recession'. Truly, it is in a crisis that the ruling class are in their prime.
One might think that the large amount of mathematics that economists use means their discipline is well suited to forecasting events. To the contrary, not only were most economists unable to predict the present crisis, they are also regularly off the mark in more basic forecasts, especially in fiscal policy.
It must be noted however, that there are some economists who have a good track record at forecasting. The Austrian economists', for example, had been arguing since 2003 that the Federal Reserve (America's central bank) was inadvertently creating the conditions for a severe recession. Their predictions were extremely specific, and have now been borne out. In addition the leading light of the Austrian school, the late Professor Ludwig von Mises, foresaw the Great Depression of the 1930s.
Overall, however, the track record of economists at making projections into the future is not a good one. We should think twice before trusting economists to know what they are talking about in this regard.
We should be sceptical of government economists, especially the central bankers. Governments usually shift the blame for their mistakes onto capitalism. Hence, we are unlikely to see politicians blame former Chairman of the Fed, Alan Greenspan, for his excessively loose monetary policy. Many believe that by keeping interest rates too low and encouraging artificial increases in wealth through speculative bubbles, Greenspan is guilty of contributing to the problem, especially in the housing sector. But you won't be seeing a push to reform monetary policy. That would be against the interests of our representatives, who must shift the blame to unfettered greed' and free-markets if they are to be re-elected.
It should be evident by now from the lackluster performance of bailout packages and interest rate cuts that the economists who said these measures would prevent a recession were wrong. A recession is coming, whether we spend $1 billion or $1 trillion of taxpayer money.
What politicians should be doing now is staying out of the way, instead of creating uncertainty in markets and thereby prolonging the agony. One of the important lessons from the 1930s is that regime uncertainty' can make matters worse, converting a recession into a depression. Robert Higgs in Depression, War and Cold War, observes that instead of allowing businesses and individuals to adjust to the changed economic environment of their own accord, political leaders inadvertently instilled a lack of confidence among private investors.
In short, we have more to fear from the drastic measures taken in recent months than from the economic crisis itself. If we allow governments to seize even greater powers under the pretence of saving us from disaster, it is certain that future generations will live to regret what is being done now. What we need to do is take a deep breath and stop panicking. This is not the end of the world.