HBO may have captivated millions of viewers with its hit series “Game of Thrones,” but in recent times, economists have captivated a smaller niche audience with their own version of Games of Teams. These public disputes, although lacking in sex and violence, have real-world implications and matter more than we may realize.
One current case is the central banks’ determination to bring inflation down to 2 percent. This target, derived from academic research, has taken on iconic status and is now seen as crucial for maintaining credibility. However, recent disputes have arisen regarding the causes and solutions to rising inflation.
In 2021, the debate was between Team Transitory, which believed that inflation was only temporary due to pandemic disruptions, and Team Permanent, which blamed it on government spending and low interest rates. Ultimately, inflation proved to be more persistent than expected, admitting defeat for Team Transitory.
By the summer of 2022, a new debate emerged between Team Soft Landing and Team Stagflation. Team Stagflation argued that reducing inflation would require a prolonged period of high unemployment, drawing parallels to the 1980s. However, Team Soft Landing disagreed, believing that different circumstances called for a different approach.
Interestingly, despite the different topics, the same economists were found on either side of the debate. This raises questions about the objectivity of the economics profession and the presence of motivated reasoning among economists.
In terms of outcomes, Team Soft Landing turned out to be right, as inflation decreased without a rise in unemployment. This contradicted the predictions of Team Stagflation, who suggested that high unemployment was necessary for taming inflation.
Two important differences can be observed in this second phase of the Game of Teams. Firstly, the optimists were correct this time, proving Team Stagflation’s predictions wrong. Secondly, the roles of the teams were reversed in relation to standard economic models. In 2021, Team Permanent followed textbook economics and succeeded, while in 2022, Team Stagflation diverged from the standard view and made inaccurate predictions.
The reasons for these misjudgments are still under debate. One possibility is that Team Transitory underestimated the duration of inflation, while another is that the relationship between inflation and unemployment is nonlinear. Perhaps both explanations hold some truth.
Overall, this ongoing tale of the Game of Teams highlights the fallibility of economists and the susceptibility of economics as a discipline to individual biases. The errors made do not necessarily condemn the entire field of economics, but rather shed light on the limitations of economists themselves.
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