The economics profession is experiencing a heated debate, signaling a potential crisis within the field. Economists, who are supposed to be objective and on the pursuit of truth, have long been divided by ideology. There are clear partisan interests at play, with some economists aligning themselves with capital and others with labor.
In the United States, this division is particularly evident, as academic economists from coastal areas typically work for Democrat administrations, while those from inland areas align themselves with the Republicans. This ideological division has fueled debates in the past, such as the argument over the causes and cures for stagflation in the 1970s.
Currently, economists are engaged in a debate over the causes of the recent surge in global inflation. With organized labor losing bargaining power and growing industry concentration reducing competition, some are questioning whether businesses are using the opportunity to increase their profit margins. Furthermore, there is a question of whether improvements in labor productivity automatically translate into higher real wages.
Last week, the Productivity Commission issued a study that claimed the long-term trend shows productivity growth and real wages have grown together for most workers in Australia. However, there are critics who argue that the study’s preferred measure of wage growth may not be the only correct way to measure it. This is a common occurrence in economics, as different groups produce calculations to support their beliefs.
The study found that industries like mining and agriculture have experienced significant wage decoupling, while others have seen relatively low differences between productivity and wage growth. However, comparing productivity growth by industry with real wage growth by industry may not be entirely relevant.
It is important to note that the promise to workers has never been that their real wages should rise in line with their own industry’s productivity. The reward for workers has always been tied to overall productivity improvements across the economy.
The economics profession is a factionalized field, with debates often devolving into arguments over methodologies. These debates can take years to resolve, but intellectual fashions and conventional wisdom do change over time.
In conclusion, the economics profession is currently in the midst of a crisis as economists grapple with conflicting ideologies and new challenges in understanding the economy. Only time will tell how this civil war within the profession will be resolved.
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