Learning to love economists

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Non-economists might be forgiven for presuming that we construct our arguments in the same way that they do: apply their preferred mixture of values and interests in order to decide whether or not they like a policy, and then assemble arguments to suppor

“Economics is a difficult and technical subject, but nobody will believe it.” — J.M. Keynes.

In certain left-leaning circles, a discussion of economic issues doesn't seem to be complete without some sort of barbed reference to those who have formal training in the field. Although some of the remarks reflect informed skepticism, many of these commentators simply don't understand what it is that economists are actually saying. But some of it descends to a level of invective that can only be described as anti-intellectual demagoguery.

Economists are not entirely blameless for this, particularly in Canada. The economics community is pretty small, so academic and public-sector economists know each other well.

Government economists are people we've gone to graduate school with, people we've met at conferences or people we've had as students. We don't need to mount a public relations campaign in order to get a sympathetic hearing at the Department of Finance or the Bank of Canada; we have similar backgrounds and speak the same language.

NAFTA, the GST and the Bank's decision to adopt inflation targets could hardly be characterized as being responses to popular opinion; they all had their origins in the interaction between academic and public-sector economists. Since we have a direct line to policy-makers for our ideas, we generally avoid our responsibility to explain them to non-economists.

Let's start with how economists reach our conclusions. Non-economists might be forgiven for presuming that we construct our arguments in the same way that they do: apply their preferred mixture of values and interests in order to decide whether or not they like a policy, and then assemble arguments to support that position. This might explain why many would view economists as opponents: by the simple act of disagreeing, aren't economists making it clear that we don't share the same values?

Except that's not how we work. Our starting point is always a model: a stylized representation of how the economy works. Once we're satisfied that we have a model that incorporates the main features of interest — this step necessarily involves a certain amount of subjective judgment — we compare what the model would predict if the policy were in place with what would happen without it. The difference between the two predictions is the effect of the policy.

So an economist's disagreement isn't necessarily based on a rejection of progressive values; we're saying that according to our understanding of how the world works, the policy you're proposing won't generate the outcomes you're predicting.

Many non-economists are aware of this, of course, and they may respond by challenging the assumptions that go into the model. But rejecting a certain assumption doesn't necessarily mean the model's predictions aren't still valid. It is simply incorrect to assert — as it has been claimed — that since Ricardo assumed that factors of production were fixed, we can conclude that his theory of comparative advantage is invalid in a world where capital is mobile.

An economist's approach to this sort of challenge is to set up another model where capital is mobile — as Robert Mundell did some 50 years ago — and see how capital mobility affects the result (it doesn't).

It's not enough to point out that a simplifying assumption isn't literally true: no-one is claiming that it is. You have to show that a more general analysis that doesn't make that particular assumption doesn't reach the same conclusion. It's an important and difficult problem: figuring out which assumptions are fundamental to the analysis and working out the implications of replacing them by more plausible representations of how the world works is how we spend much of our time.

So the starting point for a discussion of policy is “What's your model?” By this, we mean an enumeration of the hypotheses and assumptions that are required to reach the conclusion that the proposal will produce outcomes that are better that what we'd observe in its absence.

Here things can get ugly. It's often the case the non-economist — who is of course not familiar with the literature — has built his case on a long-exploded fallacy, on “facts” that turn out not to be true, or both. Economists are rarely thanked for pointing this out. As Paul Krugman puts it in Pop Internationalism, the non-economist “might decide that [he] really should go back and read a basic textbook; more likely, [he begins] [deriding] economists as pompous types who actually don't know anything.”

Things deteriorate from there. The non-economist becomes so dug into his position that he starts making value judgments about the policy instruments themselves, not their effects.

For example, there's little reason to believe that raising corporate taxes will improve the welfare of those with low incomes, and there's good reason to believe the opposite. Nonetheless, many progressives still advocate increasing them for no apparent reason other than a firm belief that increasing corporate taxes is a progressive measure in itself. An economist is simply unable to respond to this sort of argument (we have the same reaction to fundamentalist libertarians and their claims that all restrictions on markets are inherently evil), so debate ends.

This depressing state of affairs does no-one any good: what can be done? Clearly, economists can make a more concerted effort to explain to non-specialists what it is they are saying, and why. This isn't a simple task — economics is a difficult and technical subject — and it's made more complicated by the fact that there are any number of commentators who have built their careers on misunderstanding and misrepresenting what economists have to say.

But it would be easier if progressives made an effort to set aside their distrust of economists and actually listen to what we are trying to say. Yes, you may be forced to re-examine some long-held opinions, but is that really a bad thing? And you may be pleasantly surprised to learn that we too are preoccupied with finding solutions to the problems of poverty and inequality.

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