Whom should economists advise? I ask because of something Tim Harford says. He points to the abundant evidence that economists can't foresee recessions, and invokes Keynes' claim that economists should aspire to be like dentists:
We don’t expect a dentist to be able to forecast the pattern of tooth decay. We expect that she will offer good practical advice on dental health and intervene to fix problems when they occur. We should demand much the same from economists: proven advice about how to keep the economy working well and solutions when the economy malfunctions. And economists should bear in mind that no self-respecting dentist would be caught dead forecasting when your teeth will fall out.
To this, Unlearning Economics replies:
People expect dentists to tell them how to *avoid* tooth decay, not just deal with it if it occurs
Both seem to be assuming something which I find questionable - that economists should advise governments.
But why? Even if we knew for sure ways to keep the economy working well or to avoid recessions, there's no reason to suppose governments would follow such advice. If it fell outside the narrow Overton window, or if it clashed with the interests of the 1%, they might well ignore it. Shiller's proposals for macro markets to insure against big risks, and proposals to seriously fix the banking system, for example, have both been ignored. And economists' good ideas for improving well-being - on policies from fiscal policy through immigration to housebuilding - are also routinely ignored.
Dentists do not confine themselves to advising governments on dental health policy - even though they'd probably have more influence than economists - but instead help individuals.
Economists should do likewise. Here, we have a lot to offer. We know enough to give reasonable advice which can at least prevent savers from making terrible errors; this paper by John Cochrane is compulsory reading. For example, in the context of protecting ourselves from recessions, the following might help:
- Diversify: in many contexts, gilts are a hedge against recession-induced falls in share prices.
- Try and make yourself anti-fragile. If you have flexibility about when you retire, or if your human capital is portable, or if you can trade down your house, you have more ways of cushioning yourself against shocks. At least never put yourself in a position where you're a forced seller.
- When buying shares, use pound cost averaging; this limits our buying when prices are high, and raises it when prices are low. It also gives us an element of dynamic hedging - the ability to use low prices and high expected returns to offset falls in prices.
Dentistry is not much interested in politics - though dentists might reasonably lament inadequacies of dental health policy. I'm not sure economists should be much different, especially as giving policy advice causes people to under-estimate how useful economists can be.