When the Federal Reserve releases its latest monetary-policy statement Wednesday, it is unlikely that another official will join Kansas City Fed President Esther George in dissenting. It won’t be because the disappointing data argue for the Fed to keep its foot on the gas. It just turns out that, when it comes to theory, economists don’t disagree very much.
Economists tend to be divided into different schools of thought and policy persuasions: Keynes versus Hayek, government stimulus versus free markets, inflation hawk versus dove.
Two economics professors at the University of California, San Diego — Roger Gordon and Gordon Dahl — wanted to see how much economists disagree about key economic topics. After all, as the authors write, the Great Divide perception “is reinforced by the media’s use of economists with polarized views in their point-counterpoint debates.”
The UCSD economists posed a series of statements expressing a particular view on a current economic development to a panel of academic economists. The sentences were worded to express how one cause would trigger a likely effect.
The statements ranged from the impact of Fed policy on economic growth to how new technology, such as natural-gas “fracking,” could help cost competitiveness and boost exports. The respondents had five choices from “agree strongly” to “disagree strongly” and “uncertain.”
The results show that, when the body of research is large — such as for Fed effectiveness — the economists generally accepted the consensus. But when a topic wasn’t well-researched — such as the fracking-competitiveness link — more deviations were evident.
“The few disagreements that exist seem to arise largely when the academic literature on a question is small or nonexistent, allowing differing prior beliefs to remain an important determinant of posterior views,” says the paper.
Those most likely to disagree with the consensus view were men and those with experience working in Washington. That makes President George’s “no” votes all the more interesting.
Fed officials may also try harder than most economists to find a middle ground.
“It is possible that the Fed has a norm of presenting a unified front, at least on the official votes, even if there has been vigorous debate,” said Mr. Dahl.
But disagreement from Ms. George and others is healthy, if only as a reality check, even among consensus-seeking Fed officials. As the old saying goes, “If everyone thinks alike, then no one is thinking.”
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