As the financial markets melted down last fall, economist Menzie Chinn says he was surprised not only by the depth of the economic downturn that set in, but also by the certainty of Monday-morning quarterbacking from observers of the government's response to the crisis.
"It's easy to criticize, but unless you've ever been in a situation like that, it must be very hard to really understand how big these choices are, how little one can be sure about what's going on," says Chinn. "The data are incomplete, you've got all sorts of people bombarding you with different ideas, and picking out the right thing to do in the middle of a crisis is really hard."
Still, in the classroom and through his work, Chinn is putting himself and his students inside the decision-making by taking a closer look at the credit crunch and the recession as they evolve. In a seminar on the policy response to what's being called the "Great Recession," a small group of graduate students are evaluating, in real-time, the effect of this year's American Recovery Reinvestment Act on such indicators as employment and job creation, state budget gaps and gross domestic product.
Meanwhile, Chinn is writing a book with Harvard government professor Jeffry Frieden on the factors that contributed to the economic crisis.
"I can talk in a lot more depth about the crisis in this case and how it links up with current events much more deeply than in other courses," Chinn says.
Rocio Sanchez-Moyano, a second-year public affairs master's degree candidate, says the class offers an unusual opportunity to learn about economic policy as it develops. But not knowing whether the policies are working yet can be frustrating, she says.
"Macroeconomic factors usually take quite a while to get accurate estimates on, so it's sort of a guessing game," Sanchez-Moyano says. "This course gives you the opportunity to feel like you work for the Treasury or the Federal Reserve, because we have to examine the problem without complete information, just like they do."
Chinn and Frieden's book, tentatively titled The Lost Decade, is due out from W.W. Norton late next year. Their analysis will cover the politics and the economics that were underlying causes of the crisis, as well as the ramifications for what will happen going forward, Chinn says.
One long-term effect is likely to be a change in the power of the American consumer, Chinn says. For years, spending and borrowing by U.S. buyers drove the world economy, but with Americans saving more and buying less, there's likely to be a fundamental shift in consumption, he says.
"There's going to be a lot less exuberant consumer behavior, and I think the U.S. economy is going to grow more slowly," Chinn says. "You have to have people somewhere spending to buy the stuff you could produce ... It's not clear that there will be a source of demand."
Chinn also writes a blog, Econbrowser, with University of California-San Diego economist James D. Hamilton; this summer it was named one of the Wall Street Journal's top 25 economics blogs. The duo has "been delving into thorny macroeconomic questions and offering detailed, but understandable, explanations of how the Federal Reserve's unconventional policy shifts work," the Wall Street Journal wrote, giving the blog high ranks for originality and "geekiness."
Chinn says the blog gives him the freedom to explore ideas and concepts he wouldn't otherwise write about, much less put through the time-consuming process of peer review.
"The blog allows you to do things quick and dirty, and comment on things that are topical, happening right now," he says. "That's pretty rare in academia. It's not often you can talk about things that are ongoing or in a state of flux. That's why I do it."
Original story published by University of Wisconsin-Madison News