My first and most important point: pretty well every economist I have read who has expressed an opinion on the matter recognises that a deal which gives Greece at least some of what it wants is both desirable and feasible. Yes, there is some disagreement about how bad a breakdown would be for both sides, but little doubt that both sides would be better off with an agreement that significantly reduces the degree of austerity imposed on Greece. As these negotiations are essentially about economic issues and consequences, that relative unanimity is worthy of an unprecedented intervention from the US President. (Just in case you think that sounds too complacent, in the previous link Ashoka Mody does make it clear the mistakes that some individual economists and economic institutions made getting to this point.)
The second argument I wanted to make was how this example shows the importance of knowing economic history. Defaults are not day to day events, particularly if your focus is on advanced economies, so it is important to know about how these events have gone before, and in particular how debt forgiveness in the past has had positive impacts. This includes Germany’s own history. There seems to be a growing recognition that - at least in some places - economics teaching at both degree and post-graduate levels has involved too little economic history.
Some have used events like the financial crisis to call for a complete overhaul of how economics is taught. Heterodox economists want much more pluralism, and many other social scientists want economists to be much more familiar with what they know and do. I have some sympathy with both views, but - as an economist would say - only at the margin. The reason is very simple: to go even half way towards what these heterodox economists and social scientists want would involve throwing out much that is even more valuable.
That is my third point. What has it got to do with Greece? To be able to say intelligent stuff about what is going on at the moment (which you would hope an economics education would enable you to do), you need to know quite a lot of economic theory. A lot of macro of course, but quite a bit of finance, and also at least some game theory. (Although those who know their game theory should realise that at the moment the last thing on the mind of Yanis Varoufakis is being academically accurate when speaking to particular audiences!) And if you want to get into all those ‘reforms’ imposed by the Troika, you need a lot of micro.
One of the comments on an earlier post of mine said that economists should try and be less like doctors, and more like scholars. I completely disagree. For all our imperfections, economists know a lot of useful stuff. If the last six years has taught me anything, it is how wrong things can go when basic economics is ignored. Those with economic problems to solve know this most of the time (even if advice is often ignored), which is why economics is essentially a vocational subject, not a liberal arts subject.
Of course we are not as good as doctors, and make more mistakes, although sometimes we get blamed for things that probably would have happened anyway even if we had got it right. I rather liked this study entitled ‘The Superiority of Economists’. It ends as follows:
“Thus, the very real success of economists in establishing their professional dominion also inevitably throws them into the rough and tumble of democratic politics and into a hazardous intimacy with economic, political, and administrative power. It takes a lot of self-confidence to put forward decisive expert claims in that context. That confidence is perhaps the greatest achievement of the economics profession—but it is also its most vulnerable trait, its Achilles’ heel.”
When I read this, I think of Greek finance minister Yanis Varoufakis - academic economist, and former economics blogger - and hope on this occasion the confidence is retained, and that his Achilles’ heel is just a myth.