Paul raises an important issue: what’s wrong with experts? I suspect the answer is: plenty.
These many faults, however, don’t include the failure to foresee the financial crisis. It’s not the job of economists to act as soothsayers, any more than we expect mechanics to predict the next fault with our car, or doctors our next illness. There’s a lot of good economists can do without prophecy.
Instead, one problem is that experts – in public at least – don’t sufficiently identify what Charlie Munger called the edge of their competence: they don’t say what they don’t know. The problem with economists isn’t so much that they didn’t foresee the crisis as that they failed to tell the public that recessions are unforecastable (at least by mainstream techniques?) In 2000, Prakash Loungani reported that the economic consensus had failed to predict almost every recession, and AFAIK, not much has changed since.
Of course, there’s nothing unusual about economists in this regard. Gerd Gigerenzer said that doctors are “often wrong but never in doubt”; bosses rarely openly discuss the limits on their ability to control business; bankers don’t often admit to being unable to manage risk; fund managers don’t publicly say that markets are largely efficient; and so on.
I fear that academics’ pressure to publish exacerbates this error. As Andrew Gelman has consistently argued, the “p<0.05=result!” mentality has given us a lot of bad science. This can weaken public confidence. One recent example of this is the claim that roast potatoes cause cancer. This ran into the common-sense problem that everybody eats roasties but only a few get cancer, which tells us that the link, if any, must be weak. It’s this sort of thing that generates the sentiment “Experts – what do they know?”
In this context, we should remember a point made by William Easterly – that “experts are as prone to cognitive biases as the rest of us”. One of these is overconfidence. Another is that groupthink can generate intellectual fashions, such as perhaps the dominance of DSGE models.
Perhaps another facet of this overconfidence is the presumption that knowledge and expertise must be centralized, within a single mind. But as Hayek pointed out, in some contexts this is not the case. Instead, knowledge can be fragmentary, tacit and dispersed. Consumers, for example, might be better economic forecasters than the experts – as might bond markets. And workers might sometimes know more than bosses.
Which brings us to a big problem. We are too often given the impression that experts are on the side of power. In part, this is the fault of the media: bosses, for example, are routinely presented as a priestly elite rather than as mere rent-seekers.
But the fault also lies with experts themselves. Economists fail to stress sufficiently that some of the settled findings of their discipline undermine claims to power. For example, the efficient markets hypothesis tells us that fund managers are charlatans; the prevalence of diseconomies of scale suggests that bosses aren’t as much in control as they pretend; and public choice economics warns us that those in power are often just rent-seekers.
In this context, even an otherwise admirable empiricism can be reactionary. Studying the effects of the small actual and feasible tweaks to capitalism means the question of big changes gets marginalized. In this way, as Paul says, economists unwittingly accept capitalist realism (pdf).
Related, to this, mainstream economists have been insufficiently awake to distributional issues. The default ethical criterion in economics is Pareto efficiency. So, for example, we’ve accepted globalization because it is potentially Pareto efficient: the gains from it to western economies are bigger than the losses. This has blinded us to the fact that a potential Pareto improvement in which the losers don’t in fact get compensation is a much more dubious matter.
If economists had a different default mental model, they’d have been better able to press the case for policies that really do benefit everybody. If economists used Rawls’ difference principle – which stresses the need for policies and institutions that “are to be to the greatest benefit of the least advantaged members of society” – they’d be much more conscious of inequality.
We all know that a gap has emerged between experts and the public – expressed in that heckle, “That’s your bloody GDP. Not ours.” If the quality of public discourse is to be lifted out of the gutter, this gap must close. At least part of the onus on doing so lies with the experts themselves.