Larry Summers & the role of economics

Larry Summers appointment as head of the National Economic Council has resurrected the controversy about his notorious World Bank memo, in which he argued that African countries were “vastly under-polluted.”
For me, though, that episode was a perfect - yes perfect - example of what economists can and should contribute to public debate. 
The thing is, economics is not a body of hard science that can be applied mechanically to social and economic problems. Nor do economists necessarily possess better judgment or foresight than others.
Instead, what economists have are questions, not answers. They can offer arguments based in logic and evidence but which contradict instinct and consensus. They can force people to acknowledge that some moral principles, keeping poor Africans safe, can conflict with others - making them richer. They can force people to think.
Yes, Summers’ memo showed that economic logic has limits. But it also showed that cosy morality has costs too.
Better still, Summers’ memo was intended to be the first words of a conversation, not the last. He was valuing debate as an intrinsic good. The question that leaps out of every line of that memo is: what if anything is wrong with this idea?
And this is what is so rare, and valuable. Too many policy pronouncements are intended to be last words, as if the puny mind of one individual suffices to solve tricky policy problems.
Worse, they are often  mere projections of ego. Among newspaper columnists - and in this regard Polly Toynbee, Melanie Phillips and Richard Littlecock are indistinguishable - this consists of a form of grunting intended to signal that the author belongs to the readers’ tribe. Among politicians, it consists in the effort to signal that one has “judgment”, in the precisely opposite sense of the Summers’ memo - being the ability to pander to the received ideas of the trash media. The upshot is that on the rare occasions when a politician does say something intelligent, he is howled down.
The great virtue of the Summers memo was that it showed a hope that policy debate can be something better than this, richer in evidence and logic and free of ego* and intellectually stimulating - that there is a place for thinking in policy debate.
Sadly, this hope was not fulfilled. But I like to think Mr Summers has not learned from experience.
* Anyone who points out that Summers has a big ego is missing the point here.

Comments

[Philip Hunt]

100% agree.

[jameshigham]

"The thing is, economics is not a body of hard science that can be applied mechanically to social and economic problems. Nor do economists necessarily possess better judgment or foresight than others."

It was not unknown, Chris, in better days, for them to bask in the respect and prestige of the hoi polloi who were flummoxed by their esoteric language and the pronouncements emanating from their grasp of The Knowledge.

[Bob B]

Chris - FWIW after decades of working in various public sector jobs - I think you're understating the contribution of economists to policy making.

In my experience, economists tend - only tend - to think and analyse issues differently from other professionals. Such disagreements as they have are usually due to diverging simplifying assumptions in their analysis of complex issues.

Two other remarks. One relates to an online discussion with an economist years ago in an American politics forum in which I bewailed the obvious economic nonsense being posted by non-economists. In response, he made the shrewd observation that most non-economists frequently confused prescriptive (or normative) with analytical commentary.

Second: a few years after retiring - and a year or so before the famous Treasury's decision in June 2003 not to join Britain up to the Eurozone - I had successive phone conversations with two previous economist colleagues.

In one case, there was instant convergence that joining the Euro was not a good idea. With the other, he asked me with obvious disdain: "You're not one of those who opposes Britain joining the Euro, are you?"

[kinglear]

I'm very much pro people saying what they really think, as opposed to the present position where politicians in particular pander to the meedja to get a soundbite.
I canm't help but feel if people DID say what they think, we might all be better off.At least we would have proper policies and not anodyne " aspirations"

[Rowland Manthorpe]

ten hundred per cent

[Kardinal Birkutzki]

"nor do economists necessarily possess better judgement or foresight than others" !!!

I am not trying to hunt you down..but, honestly, do you actually have no shame????Do you have no self-awareness, self-analysis,introspection, self-anything??? Did you not re-read this sentence and notice anything???? Do you just assume that any criticism in your life (ever!) is just some kind of jibe??? I KNOW you are hper-intelligent. That was the point of my "IQ/CQ" post. And now you come out with this. OK, so for the benefit of the now and soon-to-be unemployed: "nor do economists necessarily possess better judgement or foresight than others". U DO NOT SAY!

[Bob B]

"'nor do economists necessarily possess better judgement or foresight than others'. U DO NOT SAY!"

I've posted here many times that various economists and economic policy think-tanks warned of the growing house-price bubble in Britain and about the structural deficits in successive budgets BEFORE the 2005 election. And they were ignored in the long honoured British tradition where politics trumps economics. Naturally, there are no better better trumps for a governing party than winning a general election.

I've no doubt that Lloyd George's call after WW1 for punitive reparations from Germany was resoundingly popular at the time but then there are also many reports of street celebrations at the outbreaks of the Crimean war, the Boer war and WW1. Populist sentiments don't necessarily make good sense.

Can't speak for journalism but IME economists working in the public sector - and I suspect also in much of the commercial sector too - are expected to take informed positions and advise accordingly. That doesn't mean any or many take much notice of them but serial questions from them or analysis of the kind: on the one hand . . and on the other, are not much appreciated.

Surf around and I think you'll find that Prof Nouriel Roubini (NY University) has for good reasons gained a reputation for his diagnosis of the unfolding predicament of a global recession. He has a piece in Wednesday's FT:
http://www.ft.com/cms/s/0/0fe65a48-c0a9-11dd-b0a8-000077b07658.html

I don't believe many (?any) non-economists are capable of writing analysis like that.

[Dipper]

A few years ago (2004?) Gordon Brown delivered the budget where he projected 3% growth forward and spent the tax projections.

I asked our resident economist how much of the above trend growth was due to borrowing based on the unsustainable growth in house prices. "About 150% of it" he replied. Not wrong.

[Ken Houghton]

Hey, stop giving Summers full credit for signing Lant Pritchett's work!

Other than that, ayup.

[Frank H Little]

I've no doubt that Lloyd George's call after WW1 for punitive reparations from Germany was resoundingly popular at the time
Surely Ll G was not as hard-line at Versailles as the French or the Americans, who took the latter's part.

[Chris Clark]

One caveat - 'I was just thinking out loud' or 'I was only raising interesting questions' are also good get outs when you're busted after you have tried to do more than that.

[Matthew]

Christ...but the problem is that:

Worse, they are often mere projections of ego. Among newspaper columnists -

Like this blog isn't? It used to be a bit diferent, but since The Times contract is't much the same, surely?

[Bob B]

This book is recognised as a classic on the public role of economists by many but would likely be spurned by those who believe the recession should be left to take its course:

Alan Blinder: Hard heads, soft hearts (1987) - sadly, out of print at present.

Blinder, an economics prof at Princeton, was Alan Greenspan's deputy at the FED in the mid 1990s.

The book includes this much-quoted passage on: Murphy's law of economic policy:

"Economists have the least influence on policy where they know the most and are most agreed; they have the most influence on policy where they know the least and disagree most vehemently."

[dirigible]

For me, though, that episode was a perfect - yes perfect - example of what economists can and should contribute to public debate.

Absolutely. They should be pointed and laughed at and then the debate should continue unaffected by them except in so far as they provide a caution against moral idiocy.

[Bruce Littlecock]

Hey! Please dont't change Richard Littlejohn's name to Littlecock. It's not funny and it's highly embarrassing for us Littlecocks.

[Bob B]

"[Economists] should be pointed and laughed at and then the debate should continue unaffected by them."

"All" economists? But, notoriously, economists don't always agree - just as lawyers, medics, journalists and politicians don't always agree on the best course forward. And economists are often ignored - just as those economists were who warned before the 2005 election about the growing house-price bubble and the structural deficits in successive budgets. We are paying the price for ignoring them now.

Try JM Keynes about Lloyd George in: The Economic Consequences of the Peace (1919):
http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/keynes/peace

There's a good case to be made for saying that the reparations demanded from Germany after WW1 were a major contributary factor in the causes of WW2. There's little doubt that exacting reparations was very popular in Britain but Keynes asked the fundamental economics question: How was Germany expected to earn the means of paying the reparations? By maintaining a verging on permanent surplus in Germany's trade with Britain, America, France etc, the leading trading nations at the time? How popular would that have been?

Because of the protectionism and beggar-my-neighbour policies of governments during the interwar years, it took until the 1970s for the international trade of the industrialised market economies to reach the same percentage of their GDP as the levels before WW1.

"It was the Smoot Hartley Act [of the US Congress] penalising imports into America which set off a worldwide round of tariff increases in 1931, making a dire economic situation even worse and creating the conditions for the Depression."
http://www.guardian.co.uk/world/1998/nov/19/eu.wto

[Laurent GUERBY]

"Economists have the least influence on policy where they know the most and are most agreed; they have the most influence on policy where they know the least and disagree most vehemently."

Yes it's funny to see that foreign aid is an area where economist advices have been exactly followed for several decades, and we all know the results. What should an honnest citizen conclude?

"Such disagreements as they have are usually due to diverging simplifying assumptions in their analysis of complex issues."

The problem with complex issues is that they are well ... complex. You have a very long list of potential effects to take into account and just taking the few of them leading to a nice equation is cool if you're in math but the jump to policy shouldn't be done as it is done now.

Economist work (mostly done on public money) shouldn't be about provocative one liners, but producing public and auditable large sets of data and effects relative to a given issue (kind of work only recently made possible thanks to the modern computers and network).

But when you try to dig you're more likely to find out nuclear bomb plan or the key to Fort Knox than public access to down to earth economic data sets. When you dig more you find out that economists themselves are locking up data, not the politicians.

This needs to change.