Economists Lose Credibility When They're Too Certain
(Bloomberg View) -- Every society runs on trust. This is even more true of complex, scientific modern societies than it is of tiny hunter-gatherer bands. Whenever you drive over a bridge, you trust that the engineers who designed based it on sound principles. When you take an antibiotic, you trust that the doctor who prescribed it did so for sound medical reasons. There are a million ways in which we trust the unseen expertise of people we’ve never met.
Science, too, relies crucially on trust. Physicists dutifully use the accepted value for the mass of the electron or Planck’s constant in their calculations, without ever bothering to set up new experiments to check these values themselves. Drug researchers trust the molecular structures they read about in chemistry papers. If scientists didn’t trust each other, science couldn’t function at all.
Because trust in experts is so crucial to a complex society, one of the scariest phrases to hear is “the experts have lied to you.” This is why conspiracy theories are so arresting. Theories that the moon landing was faked, or that Sept. 11 was an inside government job, are alarming because they strike at the glue that keeps modernity from falling apart.
Fortunately, real cases of scientific conspiracies are vanishingly rare. In the social sciences, however, where there are many fewer certainties, it’s a lot easier for experts to sound more confident than they really should be. So the most persistent claims of expert dishonesty and conspiracy tend to focus on economics and sociology.
For example, Eric Weinstein, a managing director at venture-capital firm Thiel Capital, recently leveled accusations of dishonesty against economists on several subjects, including trade, immigration and mortgage-backed securities. His thread was widely retweeted, showing how much alarm this kind of accusation can generate.
Is Weinstein right? Have cartels of economists been hoodwinking the public? On some of these issues, Weinstein’s alarm is overblown.
For example, on immigration, there isn’t even an appearance of expert consensus. University of California-Berkeley’s David Card and Harvard’s George Borjas, two of the most prominent and widely cited immigration researchers, are on opposite sides of the issue. Meta-analyses of immigration, like the recent and frequently cited report by the National Academy of Sciences, make sure to include results by economists from both sides of the dispute. Even if it turns out that some individual immigration researchers are dishonest, there is clearly not a firm consensus in the expert community, which laypeople can easily see for themselves.
Mortgage-backed securities are a more troubling case, because so few people were sounding the alarm about the models used to determine the risk of these assets in the years before 2008. But because the banks that issued these mortgage-backed bonds ended up holding so many of them -- putting them in danger of bankruptcy in 2008 -- it seems very likely that the mispricing of these bonds was mostly a genuine mistake rather than a conspiracy. Human stupidity and groupthink is far more likely culprit than a sinister expert cartel.
But on at least one issue, Weinstein’s accusation contains a grain of truth. That issue is trade.
For many years, there was a public consensus among economists that trade restrictions were bad. It was exceedingly hard to find an academic economist willing to declare in public that the benefits of trade liberalization might not always be worth the costs. Answers to polls about free trade traditionally found near-universal support for the idea:
The justification economists usually gave (and still often give) for free trade was 19th-century economist David Ricardo’s theory of comparative advantage -- a simple idea taught in every introductory economics course.
Behind closed doors, however, economists tended to take a much more nuanced attitude. Economists knew that even under the simplest theory, trade liberalization could hurt most of the people in a country while enriching a select few. Paul Samuelson, one of the founders of modern economics, noted that multilateral free-trade agreements can hurt those they were intended to help if comparative advantages shift. Other economists realized that trade barriers could be used as a bargaining chip to force international conformity to environmental standards. And by the 1990s, most economists knew that Ricardo’s theory wasn’t a very good description of how or why countries trade in the real world.
In his 2016 book “Economics Rules: The Rights and Wrongs of the Dismal Science,” Harvard’s Dani Rodrik wrote:
Economists’ contributions in public can ... look radically different from their discussions in the seminar room ... in public, the tendency is to close ranks and support ... free trade ... [For example,] the most vociferous advocate of free trade in the profession, Jagdish Bhagwati, owes his academic reputation to a series of models that showed how free trade could leave a nation worse off.
Nowadays, more economists are giving voice to public skepticism about the wisdom of unrestricted free trade. Rodrik is one example. Another is Massachusetts Institute of Technology economist David Autor, whose work with David Dorn and Gordon Hanson showed how many workers were hurt when the U.S. opened up trade with China.
But it may be too late to restore public trust in the experts. Economists committed a grave mistake when they expressed more confidence in free trade than their own research warranted. Admitting that mistake is a necessary first step in the long, hard process economists must make to convince the public that they aren’t being duped.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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