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Marginal Revolution brings my attention to a PBS interview with Warren Buffet in which he summarizes what a lot of people are thinking about the tax cuts vs. fiscal spending debate, but no policymaker worth his/her salt will dare utter in public:

SG: But there is debate about whether there should be fiscal stimulus, whether tax cuts work or not. There is all of this academic debate among economists. What do you think? Is that the right way to go with stimulus and tax cuts?

WB: The answer is nobody knows. The economists don’t know. All you know is you throw everything at it and whether it’s more effective if you’re fighting a fire to be concentrating the water flow on this part or that part. You’re going to use every weapon you have in fighting it. And people, they do not know exactly what the effects are. Economists like to talk about it, but in the end they’ve been very, very wrong and most of them in recent years on this. We don’t know the perfect answers on it. What we do know is to stand by and do nothing is a terrible mistake or to follow Hoover-like policies would be a mistake and we don’t know how effective in the short run we don’t know how effective this will be and how quickly things will right themselves. We do know over time the American machine works wonderfully and it will work wonderfully again.

SG: But are we creating new problems?

WB: Always

Ouch. This is why economics as a profession can never aspire to being a "hard science" like physics or biology: there is simply no way to conduct a closed-lab experiment on the effects of these policies. Hayek recognized this fact and emphatically discouraged attempts to quantify the economy in absolute terms - what he called "The Pretence of Knowledge." The essential complexity of economic phenomena and their interaction with the real world forces us to rely on qualitative linkages and partial data.

The implications are twofold. It means that policymakers cannot engineer a lasting state of full employment, as some of those who call themselves "Keynesians" have tried (and failed) to do through active government intervention. These are some of Hayek's clear targets in his Nobel Prize speech.

But it means equally that policymakers cannot engineer permanent economic growth through widespread deregulation that relies entirely upon private actors' self-interested decisions and risk management techniques. Left to their own devices, some of the world's largest financial institutions have leveraged their assets 30 and 40 times - often using financial instruments that were often too complex to understand, yet not complex enough to fully account for risk. One does not have to be a mathematician to see the consequences of this: countries like Iceland, Ireland, and the UK dealing with financial-sector liabilities worth many times their respective GDPs.

So when Rory and I created the tagline for this blog, we were not referring the creation a new paradigm at one or the other end of an ideological spectrum. Instead, what we're try to do is stimulate discussion that will lead to sensible, practical ideas that can help us muddle through the diffucult problems of the day. In order to accomplish that, acknowledging the limits of economics as a predictive science is a good start.