Newsletter: An economist for every idea? On the meaning of the progress in knowledge

Dear friends and colleagues,

A quick note upfront: More information about our symposium on the outcome of the US elections on 19 November can be found further down.

Whether it’s Draghi or Habeck – whenever politicians propose something significant to save the world, you often read that “economists” either support or oppose it. Sometimes, you also read that there are some who support it and others who don’t. This is partly due to the nature of a social science like economics, but it creates the impression that opinions are arbitrary.

Of course, among a few thousand economists, you can find someone to loudly represent almost any position: in favour or against public investment grants; in favour or against industrial policy; in favour of more or less government debt. So, does it not matter? I think it does. There are empirical methods to estimate the effectiveness of investment subsidies, for example, which show that they are more helpful than simply cutting taxes. Or that austerity measures in response to falling tax revenues often prove counterproductive. This is the state of modern research.

There are also epochal advances in knowledge: Many researchers, such as Mariana Mazzucato or this year’s Nobel laureates Daron Acemoglu and Simon Johnson, have meticulously documented how almost every major technology over the centuries was significantly politically driven or desired. This does not prove that it was always good, but it argues against market romanticism. To stoically claim that the state has never been a good decision-maker for technologies is strange in light of such insights. Simon Johnson explained what this means in a conversation with Achim Wambach in the New Economy Short Cut nearly a year ago (rewatch the discussion here).

Not all experts always have to agree. See above. It just makes a lot of sense to develop a kind of common sense to the best of our knowledge – so as not to start from scratch every time, to focus on the “how” and not circling around the “if” forever. Which brings us to a very German problem. In no other country do seemingly outdated economic insights seem to persist so stubbornly – whether it’s about balancing state budgets at almost any cost or the belief that (only) free competition determines technological progress. An expensive illusion: the preached technological openness explains to a large extent why the German automotive industry is at risk of being left behind in electromobility today; and the finance minister’s austerity measures explain why the country’s economic performance is stagnating.

What is or seems to be the right answer at a particular point in time, is scrutinized by former Chilean finance minister Andres Velasco in a commentary on the Berlin Declaration, which attempts exactly that: to identify a new consensus – as a kind of successor to the failed market-liberal Washington Consensus. Whether on the fundamental need for a new industrial policy or the necessary reduction of inequality. How the Berlin Declaration has already begun to replace the Washington Consensus was the subject of a 20-minute background piece in Deutschlandfunk this week – listen to it here.

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What will become of the growing new consensus after the Americans vote on 5 November will be discussed two weeks later at the aforementioned symposium on the consequences of the US election: on 19 November in Berlin-Mitte. Joe Kaeser, Simon Jäger, and Cathryn Clüver-Ashbrook have already confirmed their participation. Isabella Weber and Harold James will join virtually. In the afternoon, we will also present evaluations by populism researcher Robert Gold on whether and to what extent the Inflation Reduction Act has influenced voting behavior in favor of Kamala Harris.

And because we also want to celebrate the 5th anniversary of the Forum that evening, we will exclusively present new survey results on how the desire for new economic answers has developed in Germany since 2019.

For those who still want to join – details on the agenda and registration can be found here.

Have a good weekend,

Thomas Fricke

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