Some thoughts: Conventional wisdom
“For the wages of sin is death” is a much more satisfying message than “Shit happens.”
The year is 1990. You ask an economist what they think is the best way to promote growth in developing countries - they say a long list of recommendations, which boils down to “free markets, free trade, low taxes, and a strong currency”.
The year is 1960. You ask an economist what they think is the best way to promote growth in developing countries - they recite a list that can be summarized as “high spending and high taxes, protectionism to support industry, and a fixed exchange rate”.
The year is 1920. what they think is the best way to promote growth in developing countries - they recite a list of policies that can be summarized as “free markets, free trade, low taxes, and a strong currency”.
Conventional wisdom isn’t an “expert consensus” or the result of the careful examination of published research - it’s just the result of current events, research agenda, and sheer luck. Latin American nations, poster children of the import substitution model of the 1950s and 1960s, had become stagnant basket cases by the late 80s, mired in (hyper)inflation and fiscal issues. Meanwhile, long ignored East Asian economies (Japan, Taiwan, South Korea) were ascendant. The story to tell: government intervention failed, free markets worked. Neither was so or so: Latin American debt crises, while caused by longstanding atrocious fiscal policies, happened during the relative openness of various military juntas, whilst the “Asian Tigers” had substantial government involvement in the economy.
The reason why the “Washington Consensus” became, well, a consensus has nothing to do with economics and everything to do with politics - the meteoric ascents of Reagan and Thatcher, the collapse of the USSR, the decline of Latin American ISI, the rise of market economies in Asia. Serious, powerful people interpreted reality in an economics-sounding way and repeated it to other serious, powerful people. They all just read facts whichever way they wanted, singing the praises of the market/the government/whomever while baffled economists (or at least non-hacks) scratched their heads at the blatant falsehoods.
Conventional wisdom being frequently wrong isn’t costless. Based on fact-free theories about the evils of debt and the unbound healing powers of low taxes, European governments embarked in an inexplicable course of vicious austerity after the Great Recession - strangling their own recovery. The Great Recession itself only happened because the Federal Reserve feared a surge of inflation; the Great Inflation, where that fear came from, happened because the Federal Reserve feared that raising rates to curb inflation would cause a second Great Depression. The Depression itself, the “earthquake of macroeconomics”, only occurred because Central Bankers (besides from being “stunningly incompetent”, in the words of Galbraith) were untrained hacks who bought into the snake oil consensus of the time.
To quote Paul Krugman:
Everyone loves a morality play. “For the wages of sin is death” is a much more satisfying message than “Shit happens.” We all want events to have meaning. (…)
When Andrew Mellon told Herbert Hoover to let the Depression run its course, so as to “purge the rottenness” from the system, he was offering advice that, however bad it was as economics, resonated psychologically with many people (and still does).
“For the wages of sin is death” is a much more satisfying message than “Shit happens.” might be the heart of this piece. The conventional wisdom isn’t something based on any facts or research or even on anecdotes - it’s just a gut feeling, tying he who smelt it to he who dealt it. “Immigrants will take our jobs” - except they won’t. “The minimum wage kills jobs” - maybe it doesn’t. “Poor countries simply have too many mouths to feed” - racist nonsense. “Robots will take our jobs” - not in this lifetime.
The case for “expansionary austerity” is just Lafferite nonsense, and it crippled the European Union after the Great Recession. Its weird cousin, debt hawkery, is generally based on a single paper: Reinhart & Rogoff’s “Growth in a Time of Debt”. This research shows damaging effects from high government debt on growth. Except, the paper was plagued by questionable methodological choices and its entire thesis was only supported by an error on Microsoft Excel.
Conventional wisdom comes from politics into politics. “The death of the center left in Europe”, or “Latin American tides” for instance. In both cases, parties started winning or losing elections in the same region at the same time - clearly a sign that politics has taken a sea change!. Or maybe not.
Look at Latin America: countries with roughly similar histories, roughly similar economies, and roughly similar political institutions. The right governed the neoliberal 90s; the “pink tide” reacted, and led from the late 90s to ten years later; the right has ruled since. Proof of tides, cycles, patterns? Maybe, or maybe proof that parties tend to last a decade or so in power and that being President during a recession (the financial crises of the late 90s and early 2000s, the slowdown of the late 2010s) hurts you. Same for the European center left, although parliamentary systems favoring a sprawling number of parties, realignments over education and residence, and the refugee crisis did change how politics behaves. And the facts aren’t even on your side: looking at actual policies no Pink Tide leaders were particularly populist outside of Cristina Kirchner and Hugo Chávez (although most of them were corrupt, authoritarian, or both). There’s also that most countries didn’t even follow the alleged patterns, or that the Pink Tide-aligned Dilma Rousseff and Lenin Moreno (who later pulled a neoliberal arc) won before and after the election of Argentina’s Mauricio Macri, harbinger of the new right. And to draw conclusions from the 2020s, we have simultaneous elections which the both the left and the right lost (Argentina and Uruguay in 2019), whatever the hell you believe happened in Bolivia, a victory by a head scratching right wing - indigenous alliance (Ecuador), whatever the hell might happen in Chile, and Perú - a razor thin result between a far left candidate (who is extremely conservative) over a far right candidate who lost all of her prior supporters and gained people who formerly despised her, and who got a third of the votes between the two of them. Clearly plenty of evidence.
Conventional wisdom is just that, convention. Whichever way the wind blows, politicians and pundits will find some theory that agrees with whichever facts support the narrative, no matter how many cherries it picks.