Fake Economic Theories Sell Better Than Real Ones
(Bloomberg View) -- “Fake News” is a charge that U.S. President Donald Trump routinely levels at mainstream news outlets reporting truths he prefers not to hear. So when economists cry foul -- complaining about blasphemy and quackery among would-be practitioners -- our first instinct should be a little skepticism about the charge of Fake Economics. Isn’t this just a famously insular and recently maligned profession simply closing ranks?
Alas, no. Since the crisis, academics have, of course, faced a torrid backlash, starting with the accusation of having failed to predict the crash. These criticisms now span from claims that economists should learn more history and use fewer formulas to arguments that they should be less ideological and more interested in the “real world.” Indeed, many of the very best economists and commentators have argued that the “dismal science” needs a radical rethink: The Financial Times’s Martin Wolf recently offered an authoritative summary of the discipline’s main failings.
But the criticisms have also opened the door to alternative economic views that have little or no academic grounding. As Pierre Cahuc and Andre Zylberberg, two French economists, argued in their provocative 2016 book, the pushback against economics has gone too far. Theories and policies with little real economic rigor behind them are increasingly being touted as sound and have begun to dictate the political agenda. Cahuc and Zylberberg compared them to the theories of Trofim Lysenko, the agronomist who claimed to have disproved Mendelian genetics in Joseph Stalin’s Russia, only to cause widespread famines when his ideas were implemented.
Take, for example, the old claim that reducing the work week will increase employment. In May 2016, the French academic journal “Alternatives economiques” devoted an entire issue to the subject, entitled “Why it is necessary to reduce working hours.” One of the articles stated that between 1997 and 2001, the decision by the French government headed by the socialist premier Lionel Jospin created 2 million new jobs. However, as Cahuc and Zylberberg showed, there was no reference to the existing literature on the subject. The three main studies (on Germany, Canada and Quebec) all reach the same conclusion: Reducing working hours does not lead to more jobs.
Of course, even a rigorously established consensus among economists can be wrong. But many of the economists who peddle highly unconventional theories get away with almost no scrutiny. They shun the techniques that are standard in the profession. They don’t publish in competitive journals, arguing that these publications are biased against their work. The discipline is much more open to a variety of views than its critics concede, but that means subjecting them to a degree of rigor that most of these dissenters aren’t prepared for.
The rise of slapdash or highly dubious economic views would be less of a concern if it was confined to the intellectual debate. They aren’t. Donald Trump, has just initiated a trade war with China, following the advice of Peter Navarro, the influential head of the White House National Trade Council. While Navarro is a real economist -- he holds a Ph.D. in economics from Harvard University and has published in peer-reviewed academic journals -- most of his scientific production is related to topics such as the economics of energy, which has little to do with trade, the subject on which he is advising the president. Of course, economists routinely advise policy makers on subjects they have not published on. But since Navarro’s theories are so radically opposed to what most of the profession advocates, it would have been apt to publish some empirical results in a scientific journal before applying them to the real world.
Fake economics is making headway in Europe too. In Italy, where Cahuc and Zylberberg just published their book, the Five Star Movement and the League, two populist parties that won nearly half of the votes in this year’s general election, also draw their economic expertise from anti-establishment voices: One League adviser, for example, has argued that if Italy were to leave the euro it would simply need to shut down the banks for a few days. Most economists find this idea ludicrous given the need to impose lengthy capital controls to avoid a bank run.
Mainstream economics has responded better than many think to the post-crisis accusations. For instance, banks feature much more prominently in academic studies than they did only a decade ago. And when economists haven’t changed their ways, it is typically for the opposite reasons than to what many critics assume: Getting rid of some approximations or assumptions would demand even more complicated formulas than we see in academic journals these days. Economics would become more mathematical, not less so.
So what is to be done to stop the world falling for bad economics? Cahuc and Zylberberg say the media have a crucial role to play in distinguishing between scholars with proven academic qualifications and polemicists who have little expertise to back up their ideas. Journalists “should talk to real experts,” they write. There is little doubt that the media can play a better role in distinguishing between economic theories which have been tried and tested and speculations with little academic grounding. However, mainstream economists must do much more to defend their profession in the public debate too.
For a start, they should be much clearer about what academic theories can and cannot say. Macroeconomic forecasting is particularly tricky, since models normally have much less predictive power than economists dare to admit. And where ideas are robust, communications matter a lot: While a formula can be worth a thousand words in an academic paper, engagement on social media will require a less technical approach (one which heterodox economists can be particularly good at).
Most importantly, mainstream economists should continue to improve their discipline so as to regain the trust of the public. There is no better way to silence critics than by coming up with theories that work.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Ferdinando Giugliano writes columns and editorials on European economics for Bloomberg View. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.
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