For a layman like me, economics was always a field that helped explain how the world worked. You had a bunch of failed theories (like communism) that clearly caused havoc when tried. Then you had the other side, capitalism, that clearly worked and brought prosperity to the world in an unprecedented fashion.
Now since 2008 when the current crisis started, economists seem to have gone insane. Again from an outsider point of view, what seems to be happening is that not only economists don’t quite understand why that crisis happened (you can see the high number of completely disparate theories that have come up) but even worse, they have no idea on how to solve it.
It looks things were reduced to two camps here: the ‘keynesians’ (mostly the left) who basically say government stimulus is the only way to get out of this. You do have people who favor different types of stimulus here but at the end they think that only government spending will ‘heat up’ the economy. You try to understand how they think this works and it is again not clear. My understanding is that they think government is able to force people who are currently not spending (i.e., the rich) to spend money anyway. Actually, the way this is suppose to work is: Government spends money (which it doesn’t have, so it gets it from the people who do) and that spending creates new jobs which in turn causes money to be earned by people who were previously unemployed. These people now spend that money, and the cycle continues generating more economic activity.
The other camp here says that this government spending scheme simply doesn’t work. First, because in order to redistribute money the government needs to either raise taxes OR print/borrow money. Raising taxes causes people who do have money to spend even less. That means less consumption, less jobs, cancelling the so called ‘positive’ effect of the redistribution. Also, printing/borrowing money causes inflation or a credit crisis, which makes financing the regular government operation difficult and possibly impossible (i.e., Europe). Furthermore, these economists say that when the previously unemployed people earn this redistributed money they will not really spend it as expected. They will still save as much as possible because of all the uncertainty in the economy. This group of economists tend to favor basically no action from the government. They think that the economy will recover naturally, and the only way government can help is by leaving this process to occur without external intrusion.
That’s it. As far as I can tell, there is nothing else out there. Krugman for instance, only argues that the stimulus was not large enough. He says (or at least implies, since he is a weasel) the economy will *never* recover until a huge (in the order of hundreds of billions to trillions) stimulus occurs. On the other hand, economists that are against the stimulus think the economy will not recover until the negative effect of the stimulus (i.e., our debt) is controlled.
I don’t think neither of these two things will happen very soon. However, from what I see from my day to day life and from the latest economic indicators, the economy is improving. Slowly but constantly. So my guess is that the ‘correct answer’ lies somewhere in the middle of these two points.
That brings me to the final point of disenchantment regarding economics: Even after things improve, I bet that we will get no consensus on why that happened. Krugman and his folks will find some explanation (the ECB started to print money! Obamacare took effect! We are not measuring inflation correctly!) that proves their point, and so will the other side (Republicans took back congress and that made people more optimistic about no new taxes!).
There is no theory out there that can be called scientific because nothing can be disproved. We learned that we don’t know how or why capitalism worked and why it is not working as well now. Hopefully things will go back to normal soon but the question of why might not be answered in the process.
Economics have turned into politics which is pretty much saying that Economics is dead. Hopefully I am wrong.