There be monsters there

When an economist – of almost any persuasion or field of study – goes down the list of Nobel Prize winners since 1968, they see a mountain of progress in the subject. A lot of it is ‘inside baseball’ whose importance might not be readily accessible to non-economists, and it might not add up to technological progress as observable as mobile phones and laptop computers, or advances in medicine. Because of the nature of economics as already described – storytelling that is not particularly testable – different economists in different fields and of different political alignments will like some of the work, and not like some of the work. For me, the research on information asymmetries showing how unregulated markets don't work well – even in terms of productivity – is particularly important. It also highlights the role for implicit and explicit contracts, in other words ‘good behaviour’, ideally enforced without the expenses of the legal system. As we will argue, the adherence to norms is valuable not least for a central bank.

But what one won't find is any discovery that is so earth-shattering in its policy impact that it can be the explanation for a new world order of permanently low inflation and interest rates. There has been no polio or smallpox vaccine in economics research. ‘Forward guidance’ in monetary policy may or may not be new (it may just be a variant on old-fashioned ‘jawboning’ as a policy tool) but it's hard to imagine that anyone would say that it changed the shape of monetary policy to the extent necessary to explain a fundamental shift in outcomes.

The rise of China, and the opening of the world to free trade with China, has been of large magnitude. Deregulation, the weakening of trade unions and employee rights, increased university enrolment rates, lowering of taxes on corporations and the well-off, increased female participation in the labour market – all of these were of sufficient magnitude that they had significant impacts, some good and some bad; even leaving aside that they have left us with a world on the brink of environmental disaster.

Rather than thinking that the policies of the central banks were novel and based upon unobservable but dramatic improvements in economic analysis, maybe what's gone on is something much simpler. Policy makers ignored the map markings that ‘there be monsters there’.