Should-Read: A good Twitter debate—yes, I know that is a near-oxymoron—about macroeconomics in the public sphere: Simon Wren-Lewis, Tony Yates, and Dan Davies: “Journalists need a place they can go to get an idea of what the balance of opinion is on any issue, and why economists think that way…
…Tony Yates: ‘Professor for the Public Understanding of Economics’ akin to similar roles that exist for science and statistics. Needs a department brave enough to fund it, ie not spend money on generating REFable research output.
Dan Davies: At this stage in the development of economics as a science, the last thing we need is public understanding of how bad things are. They’d murder us.
Simon Wren-Lewis: I think they have already with Brexit. The status quo where politicians make stuff up about economics and find economists who are in an extreme minority to support that position means economics is currently worthless as a public policy tool.
Dan Davies: It also has to be faced up to that brexit gave the mainstream of economists a chance to make a big high profile prediction and we massively swung and missed.
Simon Wren-Lewis: But why was that. Plenty of economists I know worked very hard to get the message across. So where did we go wrong—what was missing?
Dan Davies: Any single prominent figure prepared to talk authoritatively because the profession had spent a decade saying “macro forecasting is for charlatans and true economics is quirky datasets”. The main message of the economics profession between 2008 and 2015 was “you can’t blame us, economics isn’t the sort of thing that lets you
Simon Wren-Lewis: Again, this confuses conditional (Brexit) and unconditional (there will be a banking crisis in 2007/8) forecasting. I didn’t hear any serious economist say we were right not to pay attention to the financial sector.
Dan Davies: I heard dozens of serious economists saying we were in a Great Moderation and could expect stable growth. It’s just not tenable to claim that failure to understand what was happening in the 00s shouldn’t affect our credibility. The 07/08 crisis demonstrated that the majority of economists didn’t understand what was happening in the actual economy for a decade. Then we popped up in 2016 saying “well, we understand this and what will happen here”.
Simon Wren-Lewis: And what, exactly, has a failure to understand the importance of finance and the possibility of crisis got to do with gravity equations. It is like saying doctors cannot cure your cold so I’m going to ignore what they say about cancer.
Dan Davies: Yes! It’s like saying “blood-letting doesn’t cure tuberculosis, so I’m not going to take mercury as a treatment for syphilis”. For the majority of the history of medicine, it was correct to assume that doctors were working on a totally mistaken understanding. Economics is not in the position of modern medical science. It would be flattering to say we were near the position of medical science shortly be before Pasteur. We make lots of mistakes, and we make them because our understanding of the economy is very bad. In the case of brexit it might be one of the areas we understand better, but it’s wholly reasonable for the public not to give us the benefit of the doubt.
Simon Wren-Lewis: So once the GFC hit, economists should have said we know nothing, so we will not advise you to cut interest rates, or bail out banks, or undertake fiscal stimulus. Yes, maybe QE will cause hyperinflation, and yes maybe all this debt will send rates through the roof.
Dan Davies: A very large proportion of the economics profession should have said “our models are clearly inadequate so we will work hard on improving our understanding, in the meantime please listen to this small subset of us who appear to have been right”. But really after a mistake that big there is no way at all that the economics profession could have expected to be listened to for a long time, and this is not really the public’s fault or the fault of politicians.
Simon Wren-Lewis: You could say exactly the same about US medics and the opioid crisis in the US, and it would be equally stupid. You cannot just ignore economics when you take economic decisions all the time.
Tony Yates: It’s explicable that we struggle to get a hearing; but not right. I personally failed to see the crisis coming, or some of the defects in our institutions that made dealing with it difficult, but I think I understand more deeply than non economists [that’s all politicians and a lot of journalists] what went wrong and what to do about it. That is not a very strong claim either as the bar is quite low…