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They found that economics students are less likely to consider a vendor who increases the price of bottled water on a hot day to be acting “unfairly.”

They found ideological differences between lower-level economics students and upper-level economics students that are similar in kind to the measured differences between the ideology of economics students as a whole and their peers. He finds that upper-level students are even less likely to support egalitarian solutions to distribution problems than lower-level students, suggesting that time spent studying economics does have an indoctrination effect.

You may say that what we need is reconstruction from the ground up — an economics with no vestige of equilibrium analysis. Well, show me some results. As it happens, the hybrid, eclectic approach I’ve just described has done pretty well in this crisis, so you had better show me some really superior results before it gets thrown out the window.

if you think you’ve found a fundamental logical flaw in one of our workhorse economic models, the odds are very strong that you’ve just made a mistake.

it’s quite clear that the teaching of macroeconomics has gone seriously astray. As Saraceno says, the simple models that have proved so useful since 2008 are by and large taught only at the undergrad level — they’re treated as too simple, too ad hoc, whatever, to make it into the grad courses even at places that aren’t very ideological.

to temper your modeling with a sense of realism you need to know something about reality — and not just the statistical properties of U.S. time series since 1947. Economic history — global economic history — should be a core part of the curriculum. Nobody should be making pronouncements on macro without knowing a fair bit about the collapse of the gold standard in the 1930s, what actually happened in the stagflation of the 1970s, the Asian financial crisis of the 90s, and, looking forward, the euro crisis.

It is nerdy-sounding, but I believe critical to this discussion, to distinguish between measurement and knowledge. I made a very strong claim about measurement, and a very specific claim about knowledge. I claim that we cannot usefully measure the effect of the stimulus program launched in 2009 at all.

All potentially useful predictions made about the output impact of the stimulus program are non-falsifiable. Failure of predictions can be simply justified by this sort of ad hoc explanation after the fact.

This argument will always degenerate back into endlessly dueling regressions, because there is no ability to adjudicate among them via experiment.

It simply means that we have no scientific knowledge about this topic. Macroeconomic assertions about the effect of a proposed stimulus policy are not valueless, but despite their complex mathematical justifications, do not have standing as knowledge that can trump common sense, historical reasoning, and so on in the same way that a predictive rule that has been verified through experimental testing can.

When using stimulus to ameliorate the economic crisis, we are like primitive tribesmen using herbs to treat an infection, and we should not allow ourselves to imagine that we are using antibiotics that have been proven through clinical trials. This should not imply merely a different feeling about the same actions, but should rationally lead us to greater circumspection.

Branko Milanovic, a former economist at the World Bank, called it “one of the watershed books in economic thinking.

“Capital in the Twenty-First Century,” with its title echoing Marx’s “Das Kapital,” is meant to be a return to the kind of economic history, of political economy, written by predecessors like Marx and Adam Smith. It is nothing less than a broad effort to understand Western societies and the economic rules that underpin them.

he said, are his generation’s “founding experiences”: the collapse of Communism, the economic degradation of Eastern Europe and the first Gulf War, in 1991.

Those events motivated him to try to understand a world where economic ideas had such bad consequences. As for the Gulf War, it showed him that “governments can do a lot in terms of redistribution of wealth when they want.” The rapid intervention to fo

The reason that postwar economies looked different — that inequality fell — was historical catastrophe. World War I, the Depression and World War II destroyed huge accumulations of private capital, especially in Europe. What the French call “les

In 2012 the top 1 percent of American households collected 22.5 percent of the nation’s income, the highest total since 1928. The richest 10 percent of Americans now take a larger slice of the pie than in 1913, at the close of the Gilded Age, owning more than 70 percent of the nation’s wealth. And half of that is owned by the top 1 percent. Advertisement Continue reading the main story Mr. Piketty, father of three daughters — 11, 13 and 16 — is no revolutionary. He is a member of no political party, and says he never served as an economic adviser to any politician. He calls himself a pragmatist, who simply follows the data.

Net wealth is a better indicator of ability to pay than income alone, he said. “All I’m proposing is to reduce the property tax on half or three-quarters of the population who have very little wealth,” he said. Write A Comment Published a year ago in French, the book is not without critics, especially of Mr. Piketty’s policy prescriptions, which have been called politically naïve. Others point out that some of the increase in capital is because of aging populations and postwar pension plans, which are not necessarily inherited.More criticism is sure to come, and Mr. Piketty says he welcomes it. “I’m certainly looking forward to the debate.”

India presents a striking example of the limitations of pure economics. From 2003 to 2011, the world’s largest democracy was growing at a phenomenal rate, exceeding 9 percent each year between 2005 and 2008. Even after 2011, it kept up a reasonable rate of growth. However, since 2018, the economy seems to be spinning into a crisis, with growth declining to 4.5 percent, consumption in India’s vast rural sector declining at rates not seen since the late 1960s, and the overall unemployment rate at a 45-year high. The 2018 Accidental Deaths and Suicides in India Report, recently released by the National Crime Records Bureau, highlights a stark mood of despair: Since 2017, there has been a noticeable rise in the relative share of suicides by daily wage earners. They are among the poorest people in the economic ladder, thereby suggesting a rise in poverty.

A recent Harvard Business Review paper shows that if a company’s workers have a sense of belonging, they improve their job performance by 56 percent, with a 50 percent drop in churn and a 75 percent reduction in sick days. For a 10,000-person company, this would result in annual savings of more than $52 million. Extrapolate this to a nation, and you get a sense of why nations where large segments feel excluded do poorly.

Behavioral economics is at the center of the so-called replication crisis, a euphemism for the uncomfortable fact that the results of a significant percentage of social science experiments can’t be reproduced in subsequent trials

this key result was not replicated in similar experiments, undermining confidence in a whole area of study. It’s obvious that we do associate old age and slower walking, and we probably do slow down sometimes when thinking about older people. It’s just not clear that that’s a law of the mind.

And these attempts to “correct” human behavior are based on tenuous science. The replication crisis doesn’t have a simple solution

Journals have instituted reforms like having scientists preregister their hypotheses to avoid the possibility of results being manipulated during the research. But that doesn’t change how many uncertain results are already out there, with a knock-on effect that ripples through huge segments of quantitative social scienc

The Johns Hopkins science historian Ruth Leys, author of a forthcoming book on priming research, points out that cognitive science is especially prone to building future studies off disputed results. Despite the replication crisis, these fields are a “train on wheels, the track is laid and almost nothing stops them,” Dr. Leys said.

These cases result from lax standards around data collection, which will hopefully be corrected. But they also result from strong financial incentives: the possibility of salaries, book deals and speaking and consulting fees that range into the millions. Researchers can get those prizes only if they can show “significant” findings.

It is no coincidence that behavioral economics, from Dr. Kahneman to today, tends to be pro-business. Science should be not just reproducible, but also free of obvious ideology.

Technology and modern data science have only further entrenched behavioral economics. Its findings have greatly influenced algorithm design.

The collection of personal data about our movements, purchases and preferences inform interventions in our behavior from the grocery store to who is arrested by the police.

Setting people up for safety and success and providing good default options isn’t bad in itself, but there are more sinister uses as well. After all, not everyone who wants to exploit your cognitive biases has your best interests at heart.

Despite all its flaws, behavioral economics continues to drive public policy, market research and the design of digital interfaces.

One might think that a kind of moratorium on applying such dubious science would be in order — except that enacting one would be practically impossible. These ideas are so embedded in our institutions and everyday life that a full-scale audit of the behavioral sciences would require bringing much of our society to a standstill.

There is no peer review for algorithms that determine entry to a stadium or access to credit. To perform even the most banal, everyday actions, you have to put implicit trust in unverified scientific results.

We can’t afford to defer questions about human nature, and the social and political policies that come from them, to commercialized “research” that is scientifically questionable and driven by ideology. Behavioral economics claims that humans aren’t rational.

That’s a philosophical claim, not a scientific one, and it should be fought out in a rigorous marketplace of ideas. Instead of unearthing real, valuable knowledge of human nature, behavioral economics gives us “one weird trick” to lose weight or quit smoking.

Humans may not be perfectly rational, but we can do better than the predictably irrational consequences that behavioral economics has left us with today.

Early in his career, Professor Thaler created a list of observed behaviors that were obviously inconsistent with the predictions of established orthodoxy.

“Misbehaving” charts Mr. Thaler’s journey to document these anomalies in the face of economists’ increasingly desperate, and sometimes comical, efforts to deny their existence or relevance

As these tools have been applied to practical problems, Professor Thaler has noted that there has been “very little actual economics involved.” Instead, the resulting insights have “come primarily from psychology and the other social sciences.”

To the extent that economists fought the integration of behavioral insights into economic analyses, it seems that their fears were founded. Rather than making the resulting work less rigorous, however, it simply made its economic underpinnings less relevant. Professor Thaler argues that it is actually “a slur on those other social sciences if people insist on calling any policy-related research some kind of economics.”

by trying to set itself as somehow above other social sciences, the “rationalist” school of economics actually ended up contributing far less than it could have. The group’s intellectual denial led to not just sloppy social science, but sloppy philosophy.

Economists would do well to embrace both their philosophical and social science roots. No amount of number-crunching can replace the need to confront the complexity of human existence.

It is not only in academics that the most difficult questions are avoided behind a mathematical smoke screen. When businesses use cost-benefit analysis, for instance, they are applying a moral philosophy known as utilitarianism, popularized by John Stuart Mill in the 19th century.

Mill has relatively few contemporary adherents in professional philosophical circles. But utilitarianism does have the virtue of lending itself to mathematical calculation. By giving the contentious philosophy a benign bureaucratic name like “cost-benefit analysis,” corporations hope to circumvent the need to confront the profound ethical issues implicated.

And while empirical evidence is important and we need more of it, the data almost never speak for themselves – a point amply illustrated by recent monetary events.

chwinger, as I remember the story, was never seen to use a Feynman diagram. But he had a locked room in his house, and the rumor was that that room was where he kept the Feynman diagrams he used in secret.

What’s the equivalent of Feynman diagrams? Something like IS-LM, which is the simplest model you can write down of how interest rates and output are jointly determined, and is how most practicing macroeconomists actually think about short-run economic fluctuations. It’s also how they talk about macroeconomics to each other. But it’s not what they put in their papers, because the journals demand that your model have “microfoundations.”

The Bernanke Fed massively expanded the monetary base, by a factor of almost five. There were dire warnings that this would cause inflation and “debase the dollar.” But prices went nowhere, and not much happened to broader monetary aggregates (a result that, weirdly, some economists seemed to find deeply puzzling even though it was exactly what should have been expected.)

What about fiscal policy? Traditional macro said that at the zero lower bound there would be no crowding out – that deficits wouldn’t drive up interest rates, and that fiscal multipliers would be larger than under normal conditions. The first of these predictions was obviously borne out, as rates stayed low even when deficits were very large. The second prediction is a bit harder to test, for reasons I’ll get into when I talk about the limits of empiricism. But the evidence does indeed suggest large positive multipliers.

The overall story, then, is one of overwhelming predictive success. Basic, old-fashioned macroeconomics didn’t fail in the crisis – it worked extremely well

In fact, it’s hard to think of any other example of economic models working this well – making predictions that most non-economists (and some economists) refused to believe, indeed found implausible, but which came true. Where, for example, can you find any comparable successes in microeconomics?

Meanwhile, the demand that macro become ever more rigorous in the narrow, misguided sense that it look like micro led to useful approaches being locked up in Schwinger’s back room, and in all too many cases forgotten. When the crisis struck, it was amazing how many successful academics turned out not to know things every economist would have known in 1970, and indeed resurrected 1930-vintage fallacies in the belief that they were profound insights.

mainly I think it reflected the general unwillingness of human beings (a category that includes many though not necessarily all economists) to believe that so many people can be so wrong about something so big.

. To normal human beings the study of international trade and that of international macroeconomics might sound like pretty much the same thing. In reality, however, the two fields used very different models, had very different intellectual cultures, and tended to look down on each other. Trade people tended to consider international macro people semi-charlatans, doing ad hoc stuff devoid of rigor. International macro people considered trade people boring, obsessed with proving theorems and offering little of real-world use.

does microeconomics really deserve its reputation of moral and intellectual superiority? No

Even before the rise of behavioral economics, any halfway self-aware economist realized that utility maximization – indeed, the very concept of utility — wasn’t a fact about the world; it was more of a thought experiment, whose conclusions should always have been stated in the subjunctive.

But, you say, we didn’t see the Great Recession coming. Well, what do you mean “we,” white man? OK, what’s true is that few economists realized that there was a huge housing bubble

True, a model doesn’t have to be perfect to provide hugely important insights. But here’s my question: where are the examples of microeconomic theory providing strong, counterintuitive, successful predictions on the same order as the success of IS-LM macroeconomics after 2008? Maybe there are some, but I can’t come up with any.

The point is not that micro theory is useless and we should stop doing it. But it doesn’t deserve to be seen as superior to macro modeling.

And the effort to make macro more and more like micro – to ground everything in rational behavior – has to be seen now as destructive. True, that effort did lead to some strong predictions: e.g., only unanticipated money should affect real output, transitory income changes shouldn’t affect consumer spending, government spending should crowd out private demand, etc. But all of those predictions have turned out to be wrong.

Kahneman and Tversky and Thaler and so on deserved all the honors they received for helping to document the specific ways in which utility maximization falls short, but even before their work we should never have expected perfect maximization to be a good description of reality.

But data never speak for themselves, for a couple of reasons. One, which is familiar, is that economists don’t get to do many experiments, and natural experiments are rare

The other problem is that even when we do get something like natural experiments, they often took place under economic regimes that aren’t relevant to current problems.

Both of these problems were extremely relevant in the years following the 2008 crisis.

you might be tempted to conclude that the empirical evidence is that monetary expansion is inflationary, indeed roughly one-for-one.

But the question, as the Fed embarked on quantitative easing, was what effect this would have on an economy at the zero lower bound. And while there were many historical examples of big monetary expansion, examples at the ZLB were much rarer – in fact, basically two: the U.S. in the 1930s and Japan in the early 2000

These examples told a very different story: that expansion would not, in fact, be inflationary, that it would work out the way it did.

The point is that empirical evidence can only do certain things. It can certainly prove that your theory is wrong! And it can also make a theory much more persuasive in those cases where the theory makes surprising predictions, which the data bear out. But the data can never absolve you from the necessity of having theories.

Over this past decade, I’ve watched a number of economists try to argue from authority: I am a famous professor, therefore you should believe what I say. This never ends well. I’ve also seen a lot of nihilism: economists don’t know anything, and we should tear the field down and start over.

Obviously I differ with both views. Economists haven’t earned the right to be snooty and superior, especially if their reputation comes from the ability to do hard math: hard math has been remarkably little help lately, if ever.

On the other hand, economists do turn out to know quite a lot: they do have some extremely useful models, usually pretty simple ones, that have stood up well in the face of evidence and events. And they definitely shouldn’t defer to important and/or rich people on polic

: compare Janet Yellen’s macroeconomic track record with that of the multiple billionaires who warned that Bernanke would debase the dollar. Or take my favorite Business Week headline from 2010: “Krugman or [John] Paulson: Who You Gonna Bet On?” Um.The important thing is to be aware of what we do know, and why.Follow The New York Times Opinion section on Facebook and Twitter (@NYTopinion), and sign up for the Opinion Today newsletter.

adherents of the method believe that “narration and formal analysis deliver better explanations of historical events than each could ever do in isolation.”

Prior to the infamous Linguistic Turn circa 1970, historians, economists, and political scientists tended to be methodologically pragmatic and could still understand, appreciate, and usefully critique each other’s work. Since then, however, the fields have drifted far apart.

Most historians eschew both theory and numbers and economists and political scientists denigrate narratives as anecdotal and ad hoc.

Economics (and to some extent political science and the other quantitatively-oriented social sciences) became little more than a type of applied mathematics as veteran government economist Steven Payson explains in his recent book, How Economics Professors Can Stop Failing Us: The Discipline at a Crossroads.

Academic economists, he shows, are not just notoriously bad at predicting panics, they are often wrong about all important aspects of the economy. That is because economics journals skew heavily in favor of overly mathematical treatments of insignificant subjects, often based on bad or even outright fake (I wish I was joking) data.

history descended into what my dissertation adviser Richard E. Ellis used to call “fart in the bottle” history, presumably because it stunk but the spread of the stench was contained by the fact that hardly anyone cared about the past anymore

In a generation, history went from being the Queen of the Social Sciences to a second rate humanities discipline. Budgets and students declined along with the discipline’s prestige and the rise in the perception that its professional practitioners were interested only in esoteric cultural topics.

The new “history of capitalism” helped to change that perception but only reinforced the notion that professional historians are no longer capable of coherent analysis. Business, policy, and especially economic historians, most recently Eric Hilt, have repeatedly shredded “history of capitalism” books, especially the ones about slavery.

The dearth of analytical prowess in history is understandable given that very few historians from the pre-Linguistic Turn era remain active. Graduate students today, even those interested in business and economics topics, are therefore being trained by narrative-oriented cultural historians

What historians (and economists and other social scientists) should do is to move back towards the middle, to mixed methods of understanding and explaining our complex social worlds, past and present.

Yet obviously something is deeply wrong with economics. While economists using textbook macro models got things mostly and impressively right, many famous economists refused to use those models — in fact, they made it clear in discussion that they didn’t understand points that had been worked out generations ago.

Moreover, it’s hard to find any economists who changed their minds when their predictions, say of sharply higher inflation, turned out wrong.

let’s grant that economics as practiced doesn’t look like a science. But that’s not because the subject is inherently unsuited to the scientific method. Sure, it’s highly imperfect — it’s a complex area, and our understanding is in its early stages.

And sure, the economy itself changes over time, so that what was true 75 years ago may not be true today — although what really impresses you if you study macro, in particular, is the continuity, so that Bagehot and Wicksell and Irving Fisher and, of course, Keynes remain quite relevant today.

No, the problem lies not in the inherent unsuitability of economics for scientific thinking as in the sociology of the economics profession — a profession that somehow, at least in macro, has ceased rewarding research that produces successful predictions and rewards research that fits preconceptions

at this point the real discussion in macro, and to a lesser extent in other fields, is taking place in the econoblogosphere. This is true even for research done at official institutions like the IMF and the Fed

How does the econoblogosphere work? It’s a lot like the 17th-century coffee shop culture Tom Standage describes in his lovely book Writing on the Wall. People with shared interests in effect meet in cyberspace (although many of them are, as it happens, also sitting in real coffee shops at the time, as I am now), exchange ideas, write them up, and make those writeups available to others when they think they’re especially interesting.

who are the players in this world? Well, look at any of the various rankings of economics blogs — say, the one at Onalytica. I don’t see any of Brooks’s Thought Leaders there. I see a lot of solid professional economists; a number of equally solid economic journalists; and a few people who don’t fall into standard categories

Does this new, amorphous system work? Yes!

the truth is that Reinhart-Rogoff faced substantial criticism from the start, and the controversy grew over time. As soon as the paper was released, many economists pointed out that a negative correlation between debt and economic performance need not mean that high debt causes low growth. It could just as easily be the other way around

Finally, Ms. Reinhart and Mr. Rogoff allowed researchers at the University of Massachusetts to look at their original spreadsheet — and the mystery of the irreproducible results was solved. First, they omitted some data; second, they used unusual and highly questionable statistical procedures; and finally, yes, they made an Excel coding error.

Correct these oddities and errors, and you get what other researchers have found: some correlation between high debt and slow growth, with no indication of which is causing which, but no sign at all of that 90 percent “threshold.”

the Reinhart-Rogoff fiasco needs to be seen in the broader context of austerity mania: the obviously intense desire of policy makers, politicians and pundits across the Western world to turn their backs on the unemployed and instead use the economic crisis as an excuse to slash social programs.

What the Reinhart-Rogoff affair shows is the extent to which austerity has been sold on false pretenses. For three years, the turn to austerity has been presented not as a choice but as a necessity. Economic research, austerity advocates insisted, showed that terrible things happen once debt exceeds 90 percent of G.D.P. But “economic research” showed no such thing; a couple of economists made that assertion, while many others disagreed. Policy makers abandoned the unemployed and turned to austerity because they wanted to, not because they had to.

In other words, the invisible hand did not solve the problem of politics by making politics altogether unnecessary. “We don’t think government can solve all our problems,” President Obama said in his convention address, “But we don’t think that government is the source of all our problems.” Smith would have appreciated this formulation. For him, whether government should get out of the way in any given matter, economic or otherwise, was a question for considered judgment abetted by scientific inquiry.

politics is a practical venture, and Smith distrusted those statesmen who confused their work with an exercise in speculative philosophy. Their proposals should be judged not by the delusive lights of the imagination, but by the metrics of science and experience, what President Obama described in the first presidential debate as “math, common sense and our history.”

John Paul Rollert teaches business ethics at the University of Chicago Booth School of Business and leadership at the Harvard Extension School.  He is the author of a recent paper on President Obama’s “Empathy Standard” for the Yale Law Journal Online.

Adam Smith, analytic philosophy, economics, Elections 2012

Mr. Trump, the bombastic businessman who’s never held office, and Mr. Johnson, the former journalist turned mayor of London, might not put it this way, since they continue to cling to a conservative mantle. But they are riding a revolt of the working class against a 40-year-long project of the political right and its corporate backers that has dominated policy making in the English-speaking world for a generation.

The British political scientist Andrew Gamble at the University of Cambridge has argued that Western capitalism has experienced two transformational crises since the end of the 19th century. The first, brought about by the Depression of the 1930s, ended an era in which governments bowed to the gospel of the gold standard and were expected to butt out of the battles between labor and capital, letting markets function on their own, whatever the consequences

Mr. Keynes’s views ultimately prevailed, though, providing the basis for a new post-World War II orthodoxy favoring active government intervention in the economy and a robust welfare state. But that era ended when skyrocketing oil prices and economic mismanagement in the 1970s brought about a combination of inflation and unemployment that fatally undermined people’s trust in the state.

The Keynesian era ended when Margaret Thatcher and Ronald Reagan rode onto the scene with a version of capitalism based on tax cuts, privatization and deregulation that helped revive their engines of growth but led the workers of the world to the deeply frustrating, increasingly unequal economy of today.

After the Brexit vote, Lawrence Summers, former Treasury secretary under President Clinton and one of President Obama’s top economic advisers at the nadir of the Great Recession, laid out an argument for what he called “responsible nationalism,” which focused squarely on the interests of domestic workers.

Instead of negotiating more agreements to ease business across borders, governments would focus on deals to improve labor and environmental standards internationally. They might cut deals to prevent cross-border tax evasion.

There is, however, little evidence that the world’s leaders will go down that path. Despite the case for economic stimulus, austerity still rules across much of the West. In Europe, most governments have imposed stringent budget cuts — ensuring that all but the strongest economies would stall. In the United States, political polarization has brought fiscal policy — spending and taxes — to a standstill.

But Obama’s early opposition to the Iraq war gave him a political firewall that protected him throughout that primary campaign, while Romney has no such policy safe harbor to safeguard him from an intramural backlash.

Romney and Obama share a lack of natural affinity for this key group of swing voters, but it is Romney who needs to figure out some way of addressing this shortcoming if he wants to make it to the White House. It’s Romney’s misfortune that the voters’ prioritization of economic issues, his own privileged upbringing and his lack of connection with his party’s base on other core issues put him in a much more precarious position than candidate Obama ever reached.

By the time the 2008 general election rolled around, Obama had bolstered his outreach to these voters by recruiting the blue-collar avatar Joe Biden as his running mate. Should Romney win the Republican nomination this year, his advisers will almost certainly be tempted by the working-class credentials that a proletarian like New Jersey Governor Chris Christie or Florida Senator Marco Rubio would bring to the ticket.

Of more immediate concern to Team Romney should be how their candidate can overcome his habit of economic tone-deafness before Rick Santorum steals away enough working-class and culturally conservative voters to throw the Republican primary into complete and utter turmoil.

The curious thing about Romney’s verbal missteps is how limited they are to this very specific area of public policy. He is usually quite articulate when talking about foreign affairs and national security. Despite his complicated history on social and cultural matters like health care and abortion, his explanations are usually both coherent and comprehensible, even to those who oppose his positions. It’s only when he begins talking about economic issues – his biographical strength – that he seems to get clumsy.

The second possibility would be for him to outline a series of proposals specifically targeted at the needs of working-class and poor Americans, not only to control the damage from his gaffes but also to underscore the conservative premise that a right-leaning agenda will create opportunities for those on the lower rungs of the economic ladder. But while that approach might help Romney in a broader philosophical conversation, it’s unlikely to offer him much protection from the attacks and ridicule that his unforced errors will continue to bring him.

The question is why Romney hasn’t embraced a third alternative – admitting the obvious and then explaining why he gets so tongue-tied when the conversation turns to money. Romney’s upbringing and religious faith suggest a sense of obligation to the less fortunate and an unspoken understanding that it isn’t appropriate to call attention to one’s financial success.It wouldn’t be that hard for him to say something like:I was taught not to brag and boast and think I’m better than other people because of the successes I’ve had, so occasionally I’m going to say things that sound awkward. It’s because I’d rather talk about what it takes to get America back to work.

This conclusion is surely controversial because many economists attribute the weak recovery to misguided austerity, especially in Europe.

Perhaps history will vindicate this appeal to Keynesianism. Or perhaps not. The fact is that the United States did respond aggressively under both George W. Bush and Barack Obama. It certainly didn’t embrace austerity. Federal budgets ran massive deficits — $6.2 trillion worth from 2008 to 2013, averaging 6.4 percent of the economy (gross domestic product).Nothing like this had occurred since World War II. Yet, the economy limped along. Why wasn’t this enough?

It’s not just Keynesianism that’s under a cloud. The same fate has befallen monetarism — the doctrine that stable growth in the money supply can promote a more stable economy. Since 2008, the Federal Reserve has poured more than $3.2 trillion into the economy to keep interest rates low and accelerate economic growth. By monetarist reasoning, so much money pumped out so quickly should spawn higher inflation. Some economists predicted as much; it hasn’t happened yet. Consumer prices today are up a mere 1.5 percent from a year earlier.

The Great Recession and financial crisis changed behavior in fundamental ways that economists have yet to incorporate fully into their models or theories

The widespread faith that modern societies were sheltered from deep and sustained economic setbacks has been shattered, causing consumers, business managers and bankers to be more cautious in borrowing and spending. Economic stimulus may offset this caution, but if it signals that the economy is weaker than expected, it may also further depress private spending.

The faith in economics was, in many ways, the underlying cause of both the financial crisis and Great Recession — it made people overconfident and careless during the boom — and the basic explanation for the weak recovery, as stubborn caution displaced stubborn complacency

When asked to estimate how many college students came from families in the bottom 20 percent of income, respondents substantially misjudged, estimating that those from the lowest income bracket attended college at a rate five times greater than the actual one

The data also confirmed the psychological utility of this mistake: Overestimating upward mobility was self-serving for rich and poor people alike. For those who saw themselves as rich and successful, it helped justify their wealth. For the poor, it provided hope for a brighter economic future.

Participants in the survey overshot the likelihood of rising from the poorest quintile to one of the three top quintiles by nearly 15 percentage points. (On average, only 30 percent of individuals make that kind of leap.)

studies by two independent research teams (each led by an author of this article) found that Americans across the economic spectrum did indeed severely misjudge the amount of upward mobility in society.

they were also asked to estimate upward mobility for people who were similar to them “in terms of goals, abilities, talents and motivations.” In this case, respondents were even more likely to overestimate upward mobility.

Those with the most room to move up were more likely to think that such movement was possible.

The higher up people said they were, the more they overestimated the likelihood of upward mobility. Being aware of your position at the top of a low-mobility hierarchy can be uncomfortable, because without mobility, sitting at the top is the result of luck, rather than merit.

political liberals were less likely to overestimate upward mobility relative to conservatives — a finding consistent with other research suggesting that conservatives see our society as more merit-based than do liberals.

members of ethnic minority groups tended to overestimate upward mobility more than did European Americans. This result indicated that those with the most to gain from believing in an upwardly mobile society tended to believe so more strongly.

belief in the American dream is woefully misguided when compared with objective reality. Addressing the rising economic gap between rich and poor in society, it seems, will require us to contend not only with economic and political issues, but also with biases of our psychology.

What nonsense am I talking about? Simon Wren-Lewis of the University of Oxford, who has been a tireless but lonely crusader for economic sense, calls it “mediamacro.” It’s a story about Britain that runs like this: First, the Labour government that ruled Britain until 2010 was wildly irresponsible, spending far beyond its means. Second, this fiscal profligacy caused the economic crisis of 2008-2009. Third, this in turn left the coalition that took power in 2010 with no choice except to impose austerity policies despite the depressed state of the economy. Finally, Britain’s return to economic growth in 2013 vindicated austerity and proved its critics wrong.

every piece of this story is demonstrably, ludicrously wrong

Yet this nonsense narrative completely dominates news reporting, where it is treated as a fact rather than a hypothesis. And Labour hasn’t tried to push back, probably because they considered this a political fight they couldn’t win. But why?

Mr. Wren-Lewis suggests that it has a lot to do with the power of misleading analogies between governments and households, and also with the malign influence of economists working for the financial industry, who in Britain as in America constantly peddle scare stories about deficits and pay no price for being consistently wrong. If U.S. experience is any guide, my guess is that Britain also suffers from the desire of public figures to sound serious, a pose which they associate with stern talk about the need to make hard choices (at other people’s expense, of course.)

The fact is that Britain and America didn’t need to make hard choices in the aftermath of crisis. What they needed, instead, was hard thinking — a willingness to understand that this was a special environment, that the usual rules don’t apply in a persistently depressed economy, one in which government borrowing doesn’t compete with private investment and costs next to nothing.