Economic Turbulence Bands Economists Together

One of the ironic consequences of the financial crisis is how it has brought together conservative and liberal economists. The two sides suddenly find themselves in agreement about how to mitigate the consequences of the worst economic shakeout since the Great Depression.

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STEVE INSKEEP, Host:

Economists disagree so frequently that President Harry Truman once said, give me a one-armed economist. That way Truman reasoned the economist would never be able to offer him advice and then say, on the other hand.

RENEE MONTAGNE, Host:

Truman might be more comfortable with economists now; there's a surprising level of agreement among people who normally agree on very little. Here's NPR's economics correspondent Adam Davidson.

ADAM DAVIDSON: When you cover the economy as a reporter, there's one part of the job that is always easy, finding economists who disagree. Let me give an example, Alan Blinder of Princeton and Glenn Hubbard of Columbia. Blinder proudly calls himself a Keynesian, says the government should play an active role in ensuring a healthy economy. Hubbard - not so much, he thinks the government should get out of the way. Blinder is fine with higher taxes, Hubbard hates them. And to my shock, the other day I read an editorial in Bloomberg News that these two guys, two intellectual opposites wrote together. Blinder says it didn't take much to write the thing.

MONTAGNE: I was totally gratified that as we drafted this thing up, the level of disagreement was essentially zero. I mean it was really easy to come to closure quickly on the exact wording.

DAVIDSON: Blinder and Hubbard were criticizing the idea that the FDIC should insure all deposits no matter how big, removing the cap that was recently raised to $250,000, but forget the specifics. I've always thought that Keynesians, people who, roughly speaking, see a bigger role for government, don't ever write editorials with libertarians. And Blinder says that is kind of true, and it was very true a while ago. The two sides used to fight viciously.

MONTAGNE: It was pretty fierce in parts of the '60s and '70s and into the '80s, and at times it got kind of nasty, yeah.

DAVIDSON: I don't want to give the impression that the disagreements ended in the '80s. The nastiness might have tempered, and there was a growing consensus on a bunch of issues, but call around economics departments - and I've done this - and start asking about tax policy or the right size of the federal government, and you'll always find sharp and clear divisions. I certainly did, until this year.

MONTAGNE: When the mistakes of the government are gigantic then it's easier for the economist to see these mistakes and to rally around a common idea.

DAVIDSON: That's Luigi Zingales of the University of Chicago where Keynes' biggest foe in the twentieth century, Milton Friedman taught. It has become a temple of anti-Keynesian economics. He says this sudden flourishing of agreement is more of a reflection of just how bad the economy is and how lousy some of the proposed solutions have been. Take Treasury secretary Henry Paulson's original bailout proposal: a clear majority of economist of all persuasions hated it. The more recent idea of directly injecting capital into banks - that found a lot more support. Peter Fisher, formerly of the Fed and of the Treasury Department, who now manages money for BlackRock, says economists agree because today's problems are intellectually pretty simple. It comes down to banks just not having enough money. That's not part of the big fundamental questions of economics, it's really about the grubby mechanics of the financial system

MONTAGNE: When it comes down to some of these grubby mechanics, economists who've thought about them even from different perspectives - political perspectives or ideological perspectives, there are these limited set of moves you can make once you've thought it through.

DAVIDSON: I should note that there is certainly are disagreements even about the grubby mechanics. Many economists don't share the consensus view. But there is one thing that I bet just about every single economist agrees on: this period of happy consensus will soon end. Next year, when Congress and the nation debate the future of regulation and the role of the government in a market economy, oh boy, those economic conferences are going to get nasty again. Adam Davidson, NPR News, New York.

INSKEEP: In addition to explaining so many things for us on Morning Edition, Adam Davidson hosts NPR's daily Planet Money podcast, and you can find it at npr.org/money.

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