May 10th 2013

What Use Are Economists?

by Dani Rodrik

Dani Rodrik, Professor of Political Economy at Harvard University’s John F. Kennedy School of Government, is the first recipient of the Social Science Research Council’s Albert O. Hirschman Prize. His latest book is One Economics, Many Recipes: Globalization, Institutions, and Economic Growth.

CAMBRIDGE – When the stakes are high, it is no surprise that battling political opponents use whatever support they can garner from economists and other researchers. That is what happened when conservative American politicians and European Union officials latched on to the work of two Harvard professors – Carmen Reinhart and Kenneth Rogoff – to justify their support of fiscal austerity. 

Reinhart and Rogoff published a paper that appeared to show that public-debt levels above 90% of GDP significantly impede economic growth. Three economists from the University of Massachusetts at Amherst then did what academics are routinely supposed to do – replicate their colleagues’ work and subject it to criticism.

Along with a relatively minor spreadsheet error, they identified some methodological choices in the original Reinhart/Rogoff work that threw the robustness of their results into question. Most important, even though debt levels and growth remained negatively correlated, the evidence for a 90% threshold was revealed to be quite weak. And, as many have argued, the correlation itself could be the result of low growth leading to high indebtedness, rather than the other way around.

Reinhart and Rogoff have strongly contested accusations by many commentators that they were willing, if not willful, participants in a game of political deception. They have defended their empirical methods and insist that they are not the deficit hawks that their critics portray them to be. 

The resulting firestorm has clouded a salutary process of scrutiny and refinement of economic research. Reinhart and Rogoff quickly acknowledged the Excel mistake they had made. The dueling analyses clarified the nature of the data, their limitations, and the difference that alternative methods of processing them made to the results. Ultimately, Reinhart and Rogoff were not that far apart from their critics on either what the evidence showed or what the policy implications were.

So the silver lining in this fracas is that it showed that economics can progress by the rules of science. No matter how far apart their political views may have been, the two sides shared a common language about what constitutes evidence and – for the most part – a common approach to resolving differences. 

The problem lies elsewhere, in the way that economists and their research are used in public debate. The Reinhart/Rogoff affair was not just an academic quibble. Because the 90% threshold had become political fodder, its subsequent demolition also gained broader political meaning. Despite their protests, Reinhart and Rogoff were accused of providing scholarly cover for a set of policies for which there was, in fact, limited supporting evidence. One clear lesson is that we need better rules of engagement between economic researchers and policymakers.

A solution that will not work is for economists to second-guess how their ideas will be used or misused in public debate and to shade their public statements accordingly. For example, Reinhart and Rogoff might have downplayed their results – such as they were – in order to prevent them from being misused by deficit hawks. But few economists are sufficiently well attuned to have a clear idea of how the politics will play out. 

Moreover, when economists adjust their message to fit their audience, the result is the opposite of what is intended: they rapidly lose credibility.

Consider what happens in international trade, where such shading of research is established practice. For fear of empowering the “protectionist barbarians,” trade economists are prone to exaggerate the benefits of trade and downplay its distributional and other costs. In practice, this often leads to their arguments being captured by interest groups on the other side – global corporations that seek to manipulate trade rules to their own advantage. As a result, economists are rarely viewed as honest brokers in the public debate about globalization. 

But economists should match honesty about what their research says with honesty about the inherently provisional nature of what passes as evidence in their profession. Economics, unlike the natural sciences, rarely yields cut-and-dried results. For one thing, all economic reasoning is contextual, with as many conclusions as potential real-world circumstances. All economic propositions are “if-then” statements. Accordingly, figuring out which remedy works best in a particular setting is a craft rather than a science.

Second, empirical evidence is rarely reliable enough to settle decisively a controversy characterized by deeply divided opinion. This is particularly true in macroeconomics, of course, where data are few and open to diverse interpretations. 

But even in microeconomics, where it is sometimes possible to generate precise empirical estimates using randomization techniques, the results must be extrapolated in order to be applied in other settings. New economic evidence serves at best to nudge the views – a little here, a little there – of those inclined to be open-minded.

In the memorable words of the World Bank’s chief economist, Kaushik Basu, “One thing that experts know, and that non-experts do not, is that they know less than non-experts think they do.” The implications go beyond not over-selling any particular research result. Journalists, politicians, and the general public have a tendency to attribute greater authority and precision to what economists say than economists should really feel comfortable with. Unfortunately, economists are rarely humble, especially in public.

There is one other thing that the public should know about economists: It is cleverness, not wisdom, that advances academic economists’ careers. Professors at the top universities distinguish themselves today not by being right about the real world, but by devising imaginative theoretical twists or developing novel evidence. If these skills also render them perceptive observers of real societies and provide them with sound judgment, it is hardly by design.


Copyright: Project Syndicate, 2013.
www.project-syndicate.org

 


This article is brought to you by Project Syndicate that is a not for profit organization.

Project Syndicate brings original, engaging, and thought-provoking commentaries by esteemed leaders and thinkers from around the world to readers everywhere. By offering incisive perspectives on our changing world from those who are shaping its economics, politics, science, and culture, Project Syndicate has created an unrivalled venue for informed public debate. Please see: www.project-syndicate.org.

Should you want to support Project Syndicate you can do it by using the PayPal icon below. Your donation is paid to Project Syndicate in full after PayPal has deducted its transaction fee. Facts & Arts neither receives information about your donation nor a commission.

 

 

Browse articles by author

More Current Affairs

Feb 18th 2020
EXTRACT: "Beyond the usual economic and policy risks that most financial analysts worry about, a number of potentially seismic white swans are visible on the horizon this year. Any of them could trigger severe economic, financial, political, and geopolitical disturbances unlike anything since the 2008 crisis."
Feb 18th 2020
Extract: "In late 2019, Zogby Research Services (ZRS) once again had the opportunity to poll public opinion across the Middle East and North Africa about many of these issues that are of such critical concern to the region and its peoples..............One of the more intriguing results in our 2019 survey were the changes in Arab views toward the Israeli-Palestinian conflict. Most Arabs still blame the US and Israel for the absence of peace and have little confidence that the conflict can be resolved in the near future. Maybe as a result of this despair, this issue now ranks low as an Arab priority. Also noteworthy is the fact that majorities in most Arab countries now say that normalization with Israel, which they acknowledge is already happening, may be a good thing. This development shouldn’t be overstated, however, since there is still no love for Israel. It appears, from our survey, to be born of frustration, weariness with Palestinians being victims of war, and the possibility that normalization might bring some economic benefits and could give Arabs leverage to press Israel to make concessions to the Palestinians."
Feb 15th 2020
EXTRACT: "Global dissatisfaction with democracy has increased over the past 25 years, according to our recent report. Drawing upon the HUMAN Surveys project, the report covered 154 countries, with 77 countries covered continuously for the period from 1995 to 2020. These samples were possible thanks to the combination of data from over 25 sources, 3,500 national surveys, and 4 million respondents. Not surprisingly, the gloomy headline finding – rising democratic dissatisfaction – attracted the most attention. Less widely discussed, however, is the “good news” – that a small sample of countries has bucked the trend, and have record high levels of satisfaction with their democracies."
Feb 14th 2020
EXTRACT: "This is how dictatorships begin. As the US prepares for its next presidential election in November, it is every citizen’s responsibility rationally to examine Trump’s dictatorial impulses, which reelection would only reinforce. It is not safe to assume that he won’t go too far, or that he is too much of a “mediocrity” – as Leon Trotsky called Stalin (an assessment with which many Bolsheviks agreed) – to transform his country......Vladimir Lenin, himself a ruthless Bolshevik, wrote in 1922 that, “Stalin concentrated in his hands enormous power, which he won’t be able to use responsibly,” owing to traits like rudeness, intolerance, and capriciousness. Trump has all of them in spades. The more power he concentrates in his own hands, the dimmer the long-term outlook for American democracy becomes. His reelection could mean lights out."
Feb 9th 2020
EXTRACT: "Does this mean that the dream of European unity is over? Does the exodus of a member state obliterate the vision of Victor Hugo and Václav Havel? Does Europe now fit the description of what the great American president Abraham Lincoln called a house divided against itself? Not necessarily. History is more imaginative than we are. The EU still has the option of keeping Britain close in heart and mind. We can still benefit from our absent partner, by resurrecting the partnership through our actions."
Feb 7th 2020
EXTRACT: "There, no formal change from a republican system to an autocratic system ever occurred. Rather, there was an erosion of the republican institutions, a steady creep over decades of authoritarian decision-making, and the consolidation of power within one individual – all with the name “Republic” preserved.........Will the GOP-led Senate’s endorsement of this defense clear a path for more of the manifestations – and consequences – of authoritarianism? The case of the Roman Republic’s rapid slippage into an autocratic regime masquerading as a republic shows how easily that transformation can occur."
Feb 7th 2020
EXTRACT: "So all that is why Cramer is talking about the death knell of petroleum stocks. We probably agree on almost nothing else, but when people are right, you have to give them credit. He is right."
Feb 3rd 2020
EXTRACT: "........as the citizens of the remaining 27 states have observed the destabilising impact that the referendum decision has had on British politics, they have been inoculated against the desire to secede from the EU. Outside the UK, national-populist parties have moderated their anti-EU rhetoric and nowadays profess to want to change the EU from within instead of destroying it."
Feb 2nd 2020
EXTRACT: "Senators will soon decide whether to dismiss the articles of impeachment against President Donald Trump without hearing any witnesses. In making this decision, I believe they should consider words spoken at the Constitutional Convention, when the Founders decided that an impeachment process was needed to provide a “regular examination,” to quote Benjamin Franklin. A critical debate took place on July 20, 1787, which resulted in adding the impeachment clause to the U.S. Constitution. Franklin, the oldest and probably wisest delegate at the Constitutional Convention, said that when the president falls under suspicion, a “regular and peaceable inquiry” is needed."
Feb 1st 2020
EXTRACT: "Britain will be celebrating its glorious independence from the complications of international cooperation at a time when the intellectual, political, and economic hostility between China’s communist leadership and liberal democracies is becoming ever clearer. If liberal democracy is to survive, it must stand up for itself. And we should be under no illusion: open societies under the rule of law, from the Americas to Europe, Africa, and Asia, are in China’s hostile sights. The West should not aim to encircle or pen in China. But liberal democracies cannot allow it to distort international norms in its own favor."
Jan 29th 2020
EXTRACT: "Switzerland and Denmark have gone furthest into negative territory, both offering unprecedentedly low rates of -0.75%. The Swiss National Bank, which has kept its rate at this level since 2015, signalled recently that it intends to stick with this experiment and is not ruling out going even more negative. It has said that negative rates were boosting the economy and that the country’s fundamentals were not being significantly affected."
Jan 28th 2020
EXTRACT: "Electricity will dominate the future global energy system. Currently, it accounts for only 20% of final energy demand,......Without assuming any fundamental technological breakthroughs, we could certainly build by 2050 a global economy in which electricity met 65-70% of final energy demand,....."
Jan 27th 2020
EXTRACT: "With the world economy operating dangerously close to stall speed, the confluence of ever-present shocks and a sharply diminished trade cushion raises serious questions about financial markets’ increasingly optimistic view of global economic prospects."
Jan 26th 2020
EXTRACT: "Gibson’s diagnosis is supported by international attitude surveys. One found that most Americans rarely think about the future and only a few think about the distant future. When they are forced to think about it, they don’t like what they see. Another poll by the Pew Research Centre found that 44% of Americans were pessimistic about what lies ahead. But pessimism about the future isn’t just limited to the US. One international poll of over 400,000 people from 26 countries found that people in developed countries tended to think that the lives of today’s children will be worse than their own. And a 2015 international survey by YouGov found that people in developed countries were particularly pessimistic. For instance, only 4% of people in Britain thought things were improving. This contrasted with 41% of Chinese people who thought things were getting better."
Jan 24th 2020
EXTRACT: "........while over 80% of the ECB scheme buys government and other public sector bonds, a huge chunk still goes into corporate bonds and other assets. At the time of writing, the ECB holds €263 billion worth of corporate bonds – a very significant amount in relation to individual firms and the sectors in question. According to the ECB, 29% of these bonds were issued by French firms, 25% by German firms and 11% each by Spanish and Italian firms. As at September 2017, the sectors they came from included utilities (16%), infrastructure (12%), automotive (10%) and energy (7%)."
Jan 17th 2020
EXTRACT: "Thanks to cutting-edge digital technology, cars are increasingly like “smartphones on wheels”, so manufacturers need to have access to the latest patented 4G and 5G technologies essential to navigation and communications. But often the companies that hold the patents are reluctant to license them because manufacturers will not accept the high fees involved, which leads to patent disputes and licensing rows."
Jan 13th 2020
EXTRACT: "Recent polling from Pew Research demonstrates how the public’s attitudes toward the US and President Trump have witnessed sharp declines in many nations across the world. In Europe, the Americas, and the Middle East favorable attitudes toward the US went from lows during the years of George W. Bush’s presidency to highs in the early Obama years to lows, once again, in the Trump era. And in our Zogby Research Services (ZRS) polling we found, with a few exceptions, much the same trajectory across the Middle East."
Jan 13th 2020
EXTRACT: "In the absence of a declaration of war against Iran, the killing of a foreign official – by a drone strike on Iraqi territory – was possibly illegal. But such niceties do not perturb Trump. The evidence is that Trump’s decision was taken without consideration of the possible consequences. The national security system established under Dwight D. Eisenhower, designed to prevent such reckless measures, is broken to non-existent, with ever-greater power placed in the hands of the president. If that president is unstable, the entire world has a very serious problem."
Jan 9th 2020
EXTRACT: "It is possible that Trump’s reverential base won’t be sufficient to keep him in the White House past 2020. But such ardent faith is hard to oppose with rational plans to fix this or that problem. That is why it is so unsettling to hear people at the top of the US government speak about politics in terms that rightly belong in church. They are challenging the founding principles of the American Republic, and they might actually win as a result."