One way economists are responding to their critics is by trying to communicate better the contribution modern empirical economics can make to policy decisions. Although these contributions are real, and may challenge political shibboleths, the discipline must also do some fundamental rethinking if it is to sustain its influential role in policy.
Supporters of Millwall football club used to have a notorious chant: Nobody likes us, we don’t care.
It might be an appropriate chant for policy economists too, who sometimes take a secret pride in their tough-minded approach to policy. We have our own chants: There’s no such thing as a free lunch. We talk about the unavoidable trade-offs (between affordable energy and mitigating greenhouse gas emissions, say), about the dilemmas and even trilemmas in policy-making.
This emphasis on tough decisions is not a sure-fire route to popularity. Nobody likes us.
Politicians certainly don’t, although this is nothing new. Keynes once said: “There is nothing a government hates more than to be well-informed; for it makes the process of arriving at decisions much more complicated and difficult.”
But many people don’t like us. They do not understand everyday economics concepts, not even basics like GDP and inflation. The Chancellor felt the need to include a warning in the 2017 Budget: “This is the bit with the economicky words in it.” Our lack of intelligibility is so notorious there’s an old joke about it. (What do you get if you cross a Mafioso with an economist? An offer you can’t understand.)
Economists were probably more shaken by the Brexit vote because it is a rejection of the fundamental idea of prosperity though specialisation and exchange of increasing scope, the foundation of economics since Adam Smith. However, for people in general (and despite the notorious George Osborne Treasury Brexit forecast), the global financial crisis was the trigger for questioning what economists claim. The scars from that shock will last for a generation.
We are also trying to influence decisions in a world steadily less amenable to evidence-based policy. The very idea of a neutral fact is increasingly being challenged. Prominent politicians and commentators constantly make statements that conflict with the evidence and insights we are pretty confident economics provides.
So this is the challenge – not just for economists, as it is part of the broader crisis of expertise, but particularly for economists.
Part of profession’s reaction is to say we must communicate better.
This is because there has been real scientific progress, particularly in applied microeconomics, the meat of so much policy. We have new data sets, new econometric techniques, and far greater computational power than in the past. We are deploying big data advances, and agent based modelling. We have new insights from network theory and market design. We are using field experiments and randomized control trials. Many economists would argue that the basic textbook policy response to the crisis was effective. All this progress makes the blanket criticisms of the discipline frustrating.
Some economists (including me) are responding by engaging in the debate with our critics, and launching the hashtag #whateconomistsreallydo. However, I am not sure it is adequate to say, in effect: “We’re marvellous, so let’s explain it to you more clearly.” I believe we need to engage properly with some serious issues in economics.
One concerns macroeconomics, the specialism of a minority of economists but the most prominent in the public eye. The ESRC is funding a programme, Rebuilding Macroeconomics, aiming for a fundamental and inter-disciplinary reassessment of the field. It is raising some questions that go to the heart of conventional economic theory, such as whether it is ever useful to assume people have fixed preferences or make their economics decisions independently of others.
A number of disciplines have experienced a replication crisis, and this will surely hit economics too. Some recent papers have raised serious issues about common empirical practices. Alwyn Young of the LSE has looked at the use of the standard instrumental variables technique in econometrics, finding it was rarely better than simpler techniques, and does not lead to robust conclusions about causality. In another recent study, published in The Economic Journal, researchers looked at the statistical power (the likelihood of finding an effect that is truly there) of results in the empirical literature and concluded that an overwhelming majority greatly exaggerate the reported effects. A replication of a famous study, which claimed to find that Israeli judges were far more likely to grant prisoners parole after a meal break, added another variable – whether the prisoners had legal representation – which eliminated the full stomach effect. Such findings point to over-confidence in our empirical tools and findings.
Then there is the sociology of the profession. We are too inward looking. Marion Fourcade and her co-authors found in a survey that over 57% of economists disagreed or strongly disagreed with the statement, ‘In general, interdisciplinary knowledge is better than knowledge obtained by a single discipline.’ This was well over twice as many as in most other social sciences. Economists are the least likely of any social scientists to cite journals outside their field, and within the field citations are predominantly to a handful of journals – even Nobel economists describe this as the ‘tyranny’ of the Top Five journals. There is a significant problem of gender bias, deeply embedded in professional culture, and diversity more broadly is an issue.
I strongly advocate for the importance, relevance, and effectiveness of economics in public debate. We do need to communicate better. However, we also need to put our house in order to rebuild our credibility and policy influence. Courage involves saying things that are unpopular with politicians and public. That might well be unpopular or fail to have any traction: politics will always be what it is.
But the other kind of courage is the pursuit and advocacy of real scientific progress in our domain. It is asking ourselves difficult questions too, admitting uncertainty about what we do know and what we don’t. Economics will not regain its heights of influence over policy until we have had a period of true introspection and reform.
This is a version of a talk given by Diane Coyle at the Government Economic Service alumni network event in the Foreign and Commonwealth Office on 4 October 2018.