Wednesday 9 May 2012

Overton Windows and Economics

In The macro Overton window Noah Smith explains how the some people are attempting to push the Overton window to the right to maintain the status quo.
The "Overton window" is basically the range of positions on a certain question that are considered reasonable. In macroeconomic policy discussions in the United States, certain positions are, for whatever reason, outside the Overton window - Marxist ideas, mercantilist ideas, the gold standard, etc. Whatever your position is in an argument, you want it to be in the middle of the Overton window instead of at the edge. You do not want to be seen as someone who is on the borderline between serious and kook.

In the debate over the causes of, and proper responses to, the current recession, the Overton window matters. If one edge of the window corresponds to Old Keynesianism and the other edge corresponds to the policy status quo, it's likely that what will end up happening will be something in between those two extremes, e.g. more quantitative easing. But if the rightmost edge of the window corresponds to the idea that demand shocks don't affect output at all, then what will end up happening will probably look more like the status quo.

Hence it makes practical sense for economists who favor less countercyclical policy to try to yank the Overton window toward the right, even if their objective analyses admit the possibility that Keynesians might be right. Or even if conservative economists don't do this intentionally, it certainly helps their cause when someone does it.

The author then goes on to give examples supporting his argument. He goes on:
Note that both Jones and Cochrane make almost explicit reference to the Overton window. Jones says RBC "rarely makes it into mainstream discussions," while Cochrane says "It's certainly possible" that Obama is behind the slow recovery. They aren't claiming that this extreme view is true. They merely wanted it included in the discussion. They want the Overton window to include it.

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