Finance & economicsJan 12th 2013 edition
If economists agree on something, the public will almost certainly think differently
ECONOMISTS love to argue. Indeed, since the crisis, it has often seemed they cannot agree on anything, and especially not on important matters like how best to boost a sickly economy or when to trim government borrowing. "Schlock economics" was the judgment bestowed by Robert Lucas, a Nobel prizewinner, on the stimulus proposals of Christina Romer, then Barack Obama's chief economic adviser. Another Nobel laureate, Paul Krugman, labelled a rival view of business cycles "Phlogiston economics", a reference to a debunked 17th-century theory of chemistry. More soft-spoken economists worry the bickering may carry a reputational cost: the public may simply conclude that solid, fact-based conclusions are beyond economists' reach.
Such concerns were discussed (politely) at the latest annual meetings of the American Economic Association. Dismal scientists throng together each year (this time in not-so-dismal San Diego) to gossip, test the job market and hear presentations on hundreds of new academic papers. Among them were a handful focused on economists' image problems. They suggest that economists, in fact, agree on quite a lot but that the public is resolutely unimpressed when they do.
Several papers draw on the results of a weekly survey of 41 eminent economists from seven highly regarded university departments, which the University of Chicago has been running since September 2011. Each week the panel is asked whether it agrees or disagrees with a question (whether the Federal Reserve's actions will raise growth, say).
In their take on the survey Roger Gordon and Gordon Dahl of the University of California, San Diego, find that on topics with a large academic literature economists mostly arrived at the same answer. A full 100% of those questioned agreed that returning America to the gold standard would be a bad idea, for instance. Bigger disagreements emerged when research was scant. Asked whether lower energy costs from new natural-gas extraction technologies might translate into an export advantage, similar shares of respondents answered that they agree, disagree, or were uncertain. But overall, economists agreed quite a lot: there were no dissenting views on 32 of the 80 questions in the sample.
Whether that is an entirely good thing is debatable. Justin Wolfers of the University of Michigan noted that such consensus emerges from a survey of just seven eminent departments. Dissenting views nurtured in less prestigious schools were not considered. And although consensus among economists may help keep bad ideas like a return to the gold standard on the fringes of American political debate, more attention to divergent views might have made it easier to prick the dangerous complacency in the profession before the crisis.
The American public certainly seems disinclined to go along with the economists' consensus. Paola Sapienza of Northwestern University and Luigi Zingales of the University of Chicago compare the economists' survey results with a similar poll of members of the public. They find a stunning gap of 37 percentage points, on average, between the proportion of economists and of ordinary Americans agreeing with a particular statement (see chart). Differences between the groups' characteristics (the economists have postgraduate degrees, for example) explain some of the gap. To control for this difference, Ms Sapienza and Mr Zingales focus on the subset of the public—namely, "Democrats [with] high trust in markets"—that looks most similar to economists. Even then the differences in opinion are substantial.
The distribution of views within the public was most similar to the distribution within the profession when there was little consensus among economists. Evidence is mixed on the benefits of school vouchers, for instance, and similar shares of economists and non-economists agreed with the policy. It is when economists felt quite certain they knew the right answer that big gaps emerged. Economists were unified in thinking it is hard for an individual investor to beat stockmarket indices; only 55% of the public agreed. Whereas 93% of economists reckoned a carbon tax is a less costly way to cut emissions than car fuel-mileage standards, only 23% of the public agreed. Such divergence may help explain the lack of traction for the policy in Washington, DC.
Om message
Economists might conclude from this that they just need to shout their views more loudly. But communication is only part of the problem. Ms Sapienza and Mr Zingales note that when Americans are told what economists believe before answering a question, their view scarcely budges. Told that economists favoured a carbon tax, the share of the public supporting the tax rose only marginally, from 23% to 26%. The public actually grew more confident in its ability to pick stocks successfully after learning that economists think it is close to impossible. Americans seem to believe that economists operate in a fact-free environment, a bit like Buddhists, commented Robert Hall of Stanford University.
In one sense, Americans do suffer from a lack of faith. Asked whether they would change their answer if told that the government planned to use carbon-tax revenues to offset other taxes, only 17% of those preferring mileage standards switched sides. Of those that did not, more than half cited a lack of trust in the government to carry out the promised policy. The public may understand more than economists give them credit for.
It does not help the profession when the federal government seems to be the source of most troubles. In one conference session David Wessel of the Wall Street Journal argued that the more an issue turns on the outcome of bargaining on Capitol Hill, the less journalists care what economists think. Dismal scientists were mostly bystanders during the debate over America's "fiscal cliff", despite the economic issues at its heart. To become more relevant, economists will have to do a better job of explaining why their findings apply to a very messy, very political world.
Economist.com/blogs/freeexchange
This article appeared in the Finance & economics section of the print edition under the headline "Room with a view"
More from Finance & economics
A stone's throw
As China's economy slows, policymakers are trying to revive it
Battle of the blockchains
The race to dominate the DeFi ecosystem is on
The $28trn global reach of Asian finance
Atom and abroad
The Kazakh crisis is only one threat hanging over the uranium market
Life after stimmy
Will Americans' pandemic savings stash keep the economy rolling?
Lockdowns and crackdowns are taking their toll
Why Ethereum is losing market share
As private savings have built up in East and South-East Asia, the region's financiers now wield heft in far-flung asset markets
A global crunch in nuclear fuel is no longer impossible
The "stimmy" boost may linger even as policymakers wind down support