Not that long ago, economists were nerdy academics who were consulted on a short list of technical issues but otherwise not included in the inner circles of power. This changed in the mid-1960s when economists claimed they could “fine-tune” the economy with their “econometric models.” They couldn’t.

The U.S. suffered four recessions between 1969 and 1981 and stocks moved sideways over that 12-year period; the 1969 stock market high was not surpassed until 1982. In the 1970s, President Nixon followed the advice of Milton Friedman to abandon gold and move to floating exchange rates. This resulted in the worst U.S. inflation (1977–1981) since the end of World War I. Persistent failure by economists did not impede their rise to power in the 1980s and 1990s.

The failures of risk management and modern finance led to the Tequila Crisis (1994), the Russia-LTCM collapse (1998), and the dot-com crash (2000). Still, the economists marched on. But as this article describes, this ascent was arrested by the 2008 financial crisis.

Economists (by then in positions of power in the White House, the Federal Reserve and other central banks) did not see the panic coming, underestimated its impact when it did arrive and bungled the crisis management by bailing out insolvent banks at the expense of savers and taxpayers. Today, economists are far more humble in their claims to expertise.

The two most powerful central bankers in the world, Jay Powell at the Fed and Christine Lagarde nominated to head the ECB, are not economists; they are both lawyers. That’s some progress.

The article poses the questions of whether economists will move back to center stage or be confined to their ivory towers as they were until the 1960s. We should hope for the latter, but beware of the former.

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