Advise whom?

To whom should economists offer advice? Traditionally, the answer has been: politicians.But I'm not sure this should be so.

This isn't just because economists can't foresee the future and so a lot of advice on monetary and fiscal policy is pointless.It's because policy is shaped not by what is the right thing to do, but by what politicians can sell to inattentive and sub-rational voters. Whatever else informs immigration policy, for example, it is not economic research.

Of course, economists do sometimes influence policy for the better - auction theory being a good example - but this happens only when economic ideas don't rub too harshly against prejudice and vested interest. Otherwise giving policy advice is, to paraphrase Robert Heinlein, like teaching a pig to sing: it wastes your time and it annoys the pig.

I suspect that, insofar as economic ideas do influence policy, it is often through the lengthy and subtle process of changing the intellectual climate - as free-marketeers did in the 60s and 70s - rather than through advice leading directly to policy.

This, though, doesn't mean economists shouldn't or can't give advice. We can - to "ordinary" people*. It's often said that "max U" economics is at least as much a normative theory as a positive one. Which suggests that there is a role for economists in helping people make everyday decisions. This role is enhanced by the fact that a lot of the best recent research in economics has been in precisely how individuals' decisions often do fall short of rational maximization. It's rather sad that many economists' reaction to the cognitive biases research programme has been: how can we use this to give policy advice (eg nudge)? when it could equally be: we can use this to help people improve their everyday decision-making.

Granted, most of the financial advice you'll ever need would fit on an index card. But, hey, repetition is the mother of learning. And the need for impartial advice is perhaps exacerbated by the fact that a lot of the advice proferred by the financial "services" industry is self-serving crap.

In truth, I'm talking my book here. A fair chunk of my day job is being like an agony aunt; I'm more like Marje Proops or Abby van Buren than Stephanie Flanders. If economists want to become like dentists - as Keynes hoped - they should deal less with politicians and more with real people, both in advising them and learning from them.  

* I hate the phrase "ordinary people"; most of our rulers - in politics and business - are far more ordinary than "ordinary people." I wish I could think of an alternative.

Comments

[Mil]

"Extra-ordinary" in the sense of "particularly ordinary" might do.

[Steven Clarke]

"Ordinary people" are much more rational in their private economic decisions than they are in their political ones (I severely summarise Bryan Caplan's argument).

However, the bad (or sub optimal) economic policies which people endorse with their voting hats on must damage their wealth as bad decisions they make with their investing hats on.

So why don't people write to you asking what economic policies to endorse as they do to ask if you approve of their portfolio? I wish more people would.

[Luis Enrique]

I haven't read it - and my guess is that it will fail - but this book has a crack at being useful

http://eu.wiley.com/WileyCDA/Section/id-302479.html?query=Itzhak+Gilboa

the author has done interesting work on decision making under uncertainty - case based decision making, which some reviewers claim is close to Keynes' ideas

[pablopatito]

"policy is shaped not by what is the right thing to do, but by what politicians can sell"

Before my time, but didn't Thatcher pursue economic policies when she first came to power that were extremely difficult to sell, and would have cost her the election if it wasn't for the Falklands? Did she not do it, at least to some degree, because she thought it was "the right thing to do"?

[George Hallam]

 I hate the phrase "ordinary people"

There are two shades of meaning to ‘ordinary’:

1. Average, unexceptional, the general, as in ‘ordinary usage’
2. Of inferior quality; second-rate

To most people the phrase ‘ordinary people’ uses the first sense to denotes those people who aren’t privileged.

When you say that “most of our rulers - in politics and business - are far more ordinary than "ordinary people." You are using the word in the second sense.

If you have a problem with these two shades of meaning then it might be because you are an elitist and a snob.

Alternatively,
a) you are a bit thick.

b) you are short of material for you blog.

b) sees more probable.

[Anonymous]

"Otherwise giving policy advice is, to paraphrase Robert Heinlein, like teaching a pig to sing: it wastes your time and it annoys the pig."

That made me think of Osborne.

[rogerh]

Economic laws seem different for politicians.

What might be useful to ordinary people is:

Which insurances not to buy.

Which investments not to buy.

Which uni courses your kids should avoid.

How to subvert the bedroom tax - and any other you can think of.

Offshore banking for ordinary people.

In short level the playing field.

[AllanW]

Terrific! Finally a post on here I can salute. Congratulations.

Now as rogerh begins to list, can we begin to construct a number of useful economic guidance suggestions applicable at any one time and in any one context to many people, please?

They will probably be far more of the 'avoiding mistakes' variety of suggestion in order to be more useful and pragmatic (a bit more Popper than anyone else) to start with but that only reflects reality.

I'm sure we all know that advice couched in opposite terms to the wildly utopian self-help industry could land with a sickening 'thud' but with perseverance and time we could construct a 'Which' magazine type reputation for delivering worthwhile and independent advice that positively helps people live a bit better (more successful) life.

The dismal 'science' might just redeem itself if it can successfully pull off this sort of useful function.

[C. Sullivan]

>This role is enhanced by the fact that a lot of the best recent research in economics has been in precisely how individuals' decisions often do fall short of rational maximization.

Why presume that "rational maximization" as determined by economists, would make people happier? Nature's spent 100,000 years baking loss aversion into the human psyche; you might can make people place their bets the way game theory says they ought to, but you can't take the gut-wrench out of losing. Most of the things that give our lives meaning are irrational.