Monday, October 30, 2006

Stern and the consensus view

In a recent article about the consensus view on climate change, the Telegraph’s Ruth Lea made the following observations:
Economics, albeit more prosaically, has also been subject to fads, whims and consensus views to which history has not been kind.

Twenty-five years ago Britain was at an economic crossroads. The credibility of the British economy was collapsing as inflation and unemployment soared, manufacturing output slumped and the national debt spiralled upwards. Margaret Thatcher and her Chancellor, Sir Geoffrey Howe, concluded that drastic action was required. Taxes were raised by £4bn (then a huge sum) in the 1981 Budget in order to provide scope for lower interest rates and tackle public sector borrowing. There was, unsurprisingly, substantial political opposition.

But, of more interest, 364 economists signed a letter to The Times stating that there was "no basis in economic theory or supporting evidence" for Sir Geoffrey's policy and that it threatened Britain's "social and political stability". An alternative course of action must be pursued, these savants insisted.

Almost the entire academic economic establishment stood against the Government with a mere handful of brave "mavericks" dissenting from the consensus view. But, as we now know, the letter's signatories were wrong because they believed in the then ubiquitous, but faulty, Keynesian consensus of the time.

Moreover, not only did the economics establishment regard Sir Geoffrey's Budget as fundamentally flawed, they also took the same view of the mavericks' judgments. This is instructive. Many in academia seem to believe that "peer-reviewed" research guarantees impartial, sound and independent assessment. It does not. Mavericks can be marked down and dismissed by their consensus-minded peers. Dissension is rarely popular.

The story of the 364 economists should be a warning to all who give the impression that the consensus view is an impregnable fortress of truth.
One of the 364 signatories was a certain professor from Warwick University:

I wonder what he's up to these days...
Climate change could shrink the global economy by a fifth at a cost of up to £3.68 trillion unless drastic action is taken, a review is to warn.

But taking action now would cost just 1% of global gross domestic product, economist Sir Nicholas Stern says.

Update. Philip Chaston at Samizdata comments:
The Letter from David Miliband, the appointment of the political failure Al Gore and the report by Stern are all designed to provide the intellectual ballast for continued government expansion. These taxes are politically unpalatable and would be rejected by the electorate, if levied without green cover. Therefore, climate change and catastrophism are the reasons for a 'greener than thou' ratchet effect, where politicians use Britain and our money to puff themselves up as a moral example for others.
Talking of Al Gore...

(Part one)

(Part two)

(Part three)


Anonymous KC said...

How DARE they make light of the important issue concerning "ManBearPig"?!

I'm going to have to finish watching the other 2 parts in the morning. Lost it after viewing the rock formations in the Cave of The Winds. I grew up 4 miles from there and don't recall "The Sisters"...

2:42 am  

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