Economics(1) has many attributes of a religion: Its high priests argue about arcane minutia, offer prophecies which don’t come to pass, and taking them seriously requires a leap of faith.
Any serious politician requires an economic shaman — preferably one with an exalted academic position and a talent for soundbites. These high priests speak with great certainty and self-confidence, despite having much to be modest about.
As a former policymaker and consumer of economic analysis, I suggest the priesthood of tax, regulatory and fiscal policy would benefit from: Replication studies (hint — what real scientists do); Indices/tracking metrics/awards to measure economic forecaster accuracy; The medical profession’s principle of “first, do no harm“; and Oversight of conflicts of interest.
I’m not alone in my concerns about economics. For example, Nassim Nicholas Talebcommented:
You can disguise charlatanism under the weight of equations, and nobody can catch you since there is no such thing as a controlled experiment.
And Nate Silver, in The Signal and the Noise, reviewed the accuracy of economic forecasts utilizing data from the Survey of Professional Forecasters. After noting how bad the forecasts have been, he concluded:
There is almost no chance that the economists have simply been unlucky; they fundamentally overstate the reliability of their predictions.
In theory, economists are rewarded for seeking the truth. In reality, many are rewarded for outlandish soundbites for “talking head” shows and supporting whichever special interest group pays them.
Our mass media (from Fox News to MSNBC) makes no attempt to track the accuracy of past forecasts of pontificating pundits. Instead, it often gives the most air time to the shrillest, least accurate and most doctrinaire — thereby promoting unreliable spinmeisters into the lucrative realm of the pundocracy (as documented by Philip Tetlock).
To address these concerns, I suggest economists:
1. Commit to replication studies and multiple modeling/data sources before making policy recommendations. The recent fracas over the work of Professors Carmen Reinhart and Kenneth Rogoff is one highly-publicized example of this issue. In 2010, they published research widely interpreted and cited as demonstrating that once government debt exceeds 90 percent of gross domestic product, economic growth would likely be sharply reduced. Their research certainly played a major role in the austerity debates. In 2013, however, researchers at the University of Massachusetts attempted to replicate their work, revealing serious issues with the original 2010 paper.
My point isn’t to re-debate the austerity controversy, but rather to highlight that — under no circumstances should major policy debates rely on unreplicated studies, using single data sets, done from the viewpoint of a single model (a point also made by Harvard professor and former Treasury Secretary Larry Summers). Practitioners and academic economists should both insist on higher standards.
2. Create indices/tracking metrics/awards to measure forecaster accuracy, with incentives for accuracy and disincentives for inaccuracy . Economists should be modest about the predictive power of their models, because they have much to be modest about. Publicly accessible tracking of such forecasts would encourage modesty. This sort of tracking isn’t easy. But a profession claiming to understand the global economic system should be able to develop metrics to better assess its own accuracy.
3. “First, do no harm”. The shamans of economics recommend bold policy initiatives, predicting (like modern Savonarolas) that if true believers do as they are bid — economic heaven will descend upon us (followers of the church of the Holy Tax Cut are particularly prone to this mania). Like religious leaders from time immemorial, priests of the Holy Tax Cut (or whatever nostrum is popular that week) never discuss what could go wrong. Arguably, the 2008 financial crisis was partially the result of a religious-like faith in the power of deregulation and tax cuts, and a complete lack of concern about worst case scenarios. Economists should much more aggressively “red team” and pre-mortemproposed policies.
4. Acknowledge, and manage with oversight, conflicts of interest. Like Renaissance-era cardinals, the princes of economics preach one set of rules for the laity, but apply a different set to themselves. One of the deepest held beliefs of economists is the power of financial incentives to influence behavior. Yet, according to the shamans of economics, only one group of individuals is immune to the influence of money — economists. Doctors, lawyers, bus drivers, and everyone else responds to financial incentives. But, miraculously — economists are presumed to be immune to the almighty dollar’s siren song. It’sdisingenuous for prominent economists to receive millions in fees for consulting and speeches, yet claim this doesn’t influence economists’ priorities, policy recommendations and research agendas. Even when these fees don’t buy policy recommendations, they create the appearance of inappropriate influence.
Perhaps instead of aspiring to be a national priesthood of public policy, economists should focus on the more limited goal suggested by John Maynard Keynes.
If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.
(1) Economics is generally split between Macroeconomics (which concerns large-scale or general economic factors) and Microeconomics (which analyzes the behavior of individual consumers and firms). For ease of exposition, I’ve used the terms economics, economists, etc. — but this commentary is primarily about the challenges facing Macroeconomics.
Steven Strauss is an adjunct lecturer in public policy at Harvard’s Kennedy School of Government. Immediately prior to Harvard, he was founding Managing Director of the Center for Economic Transformation at the New York City Economic Development Corporation. Steven was one of the NYC leads for Applied Sciences NYC (Mayor Bloomberg’s plan to build several new engineering and innovation centers in NYC), NYC BigApps and many other initiatives to foster job growth, innovation and entrepreneurship. In 2010, Steven was selected as a member of the Silicon Alley 100 in NYC. He has a Ph.D. in Management from Yale University, and over 20 years’ private sector work experience. Geographically, Steven has worked in the U.S., Asia, Europe and the Middle East. You can follow him on Twitter at: @Steven_Strauss