'How Economics Managed to Make Amends'

Arvind Subramanian defends economics:

How economics managed to make amends, by Arvind Subramanian, Commentary, Financial Times: In 2008, as the global financial crisis unfolded, the reputation of economics as a discipline and economists as useful policy practitioners seemed to be irredeemably sunk. Queen Elizabeth captured the mood when she asked pointedly why no one (in particular economists) had seen the crisis coming. There was no doubt that, notwithstanding the few Cassandras who correctly prophesied gloom and doom, the profession had failed colossally. ...

But crises will always happen and ... their timing, form and provenance will elude prognostication. Most crises, notably the big ones, creep up on us from unsuspected quarters. ... So, if the value of economics in preventing crises will always be limited (although hopefully not non-existent), perhaps a fairer and more realistic yardstick should be its value as a guide in responding to them. Here, one year on, we can say that economics stands vindicated.

How so? Recall that the recession of the late 1920s in the US became the Great Depression, owing to a combination of three factors: overly tight monetary policy; overly cautious fiscal policy...; and dramatic recourse to beggar-thy-neighbour policies, including competitive devaluations ... and increases in trade barriers. The impact of this global financial crisis has been significantly limited because on each of these scores, the policy mistakes of the past were strenuously and knowingly avoided. ...

What is striking about the influence of economics is that similar policy responses in the fiscal and monetary areas, and non-responses in relation to competitive devaluations and protectionism, were crafted across the globe. They were evident in emerging market economies and developing countries as much as in the industrial world; in red-blooded capitalist countries as well as in communist China and still-dirigiste India. If ever there was a Great Consensus, this was it.

If the Great Depression had not happened 80 years before,...  perhaps 2009 might have turned out differently. But... We were not condemned to repeat the mistakes of history because the economics profession had learnt and distilled the right lessons from that event.

For sure, we have not learnt all the lessons; we may even have learnt some wrong ones. It is also probable that we are setting the stage for future crises... So, economics is bound to fail again. But the avoidance of the Greatest Depression that could so easily have happened in 2009 is an outcome the world owes to economics; at the least, it is the discipline’s atonement for allowing the crisis of 2008 to unfold.