Blog-Reference and Blog-Reference
You say: “Badly-intentioned or incompetent policymakers can mess up any system of macroeconomic regulation.” True enough.
But there is another alternative: macroeconomic regulation and policy advice of economists is not worth much, to begin with. So, ultimately it is incompetent economists and not politicians who mess up the economy.
“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991, p. 30)
To this simple fact, policymakers and the general public wake up at the moment. As you observe: “And the answer, of course, is that by now centuries of painful experience have taught central bankers one thing: All advocates, wittingly or unwittingly, were simply selling snake oil.”
The irony of the matter is that it was not some soapbox agitators who were selling snake oil, it was the most respected members of the economics profession who traditionally tell central bankers how to conduct monetary policy. Economics, to be sure, is a honeypot for cranks but the most destructive effects are not brought about by borderline populists but by orthodox mainstream economists themselves.
The general point is that, as a rule, economic policy advice has no sound scientific foundations. Orthodoxy, that is Walrasianism with a grain of short-term Keynesian imperfections, is fundamentally defective.
All variants of Orthodoxy are built upon this set of foundational propositions, a.k.a. axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub, 1985, p. 147)
Methodologically, these premises are forever unacceptable but the representative economist swallows them hook, line and sinker for more than 150 years. Only scientific crackpots can do this. NOT ONE of the axioms holds water, but in the new form of DSGE models, HC1|HC5 underlay current monetary guidance. And this fully explains why over more than 150 years “Their advice was bad then. It is bad now.”
Economics is a failed science. The common fatal defect of Walrasianism, Keynesianism, Marxianism, and Austrianism is that the profit theory is false (Desai, 2008, p. 10). Mistakes/errors/blunders in the axiomatic foundations affect all parts of the logical superstructure. This means that the familiar theories of market coordination, the functioning of the price mechanism, distribution, employment, and money are false, too (2015).
Broadly speaking: economics, understood as the collective scientific knowledge of economists, should be able to tell with certainty how the economy works, what the critical functions are, how institutions have to be designed in order to guarantee the proper functioning of subsystems and the integrated whole. Thus defined, there is no economics.
As Krugman put it on his blog “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point”. Because these axiomatic foundations are provably false, most of what economists produce is proto-scientific garbage. To avoid further frustration, the first thing to do is to communicate clearly to the general public that no scientifically sound advice is ever to be expected from people who have not figured out since Adam Smith what profit is.
Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, 1–11. Palgrave Macmillan, 2nd edition. URL
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge: MIT Press.
Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal. American Economic Review, Papers and Proceedings, 75(2): 146–149. URL