Economics as politics by other means

In parallel to my prior post on an emergent pattern of cheating by expert pundits, there has been an equally interesting phenomenon over the past few weeks of what the profession might call “economists behaving badly.” Economists as a profession draw their legitimacy from their claimed status as being the most scientific of the social sciences, based in large part on the mathematical rigor in their models, which implies both an objectivity and an inarguable logic. Equally, their affiliation with universities (and the occasional think tank) gives them the imprimatur of peer approval, as well as an institutional footing that bolsters their positioning as both objective and expert arbiters of policy and the economy in general. Presumably, someone who has attained that position and has political views has arrived at them after a careful analysis of the facts based on work done according to the same standards that earned them their university perch in the first place.

I don’t say any of this because I believe it (and few would agree), but because I think it’s important to look at the structure that underwrites the claims of authority by economists. More important, it tells us something about the profession when some economists feel comfortable leaping into the political fray in a way that trashes the assumptions embedded in this structure.

Three events in particular come to mind. In the first case, four highly credentialed and well-known economists penned a white paper in support of Romney’s economic policies that utterly failed any traditional academic standard of rigor – results of prior research were misrepresented, in some cases leading those quoted to speak out against the authors. More recently, Niall Ferguson’s cover article in Newsweek directly attacked Obama using arguments that were easily debunked within days. And in today’s Bloomberg, economist Lawrence Kotlikoff points to an online statement by “Economists for Romney” singed signed by over 500 economists. Kotlikoff lays out the problem with this behavior:

The decision of the 500 U.S. economists, many from the leading ranks of the profession, to trade in their credentials as economists for that of campaign workers is just the latest sign that something’s rotten in economics. The documentary “Inside Job,” demonstrated how prominent economists failed to disclose, as standard ethics require, when they are being paid for their professional opinions.

Then there is the increasingly nasty op-ed war pursued by political economists, such as Paul Krugman and Glenn Hubbard, who have so closely aligned themselves with one of the two parties that it’s impossible to know where their politics stop and their economic analyses begin.

The worst part of all this is that the new political economics routinely diverges so far from economic theory and fact.

Take the very first statement in the Romney endorsement, namely that the Republican candidate’s economic policy would “reduce marginal tax rates on businesses and wage incomes and broaden the tax base to increase investment, jobs, and living standards.”

Any well-trained economist — and the Romney 500 are certainly very well-trained — knows that tax cuts produce both incentive and redistribution effects. We call these substitution and income effects. The Romney tax plan has relatively minor incentive effects and the income effects of its base broadening go in the wrong direction.

And here we get to one of the most baffling aspects of status and academia, which is that (as far as I can tell) none of these individuals will bear a professional cost for their shoddy work, even though it is so sloppy that it risks tarnishing the very prestige it relies on. Yet economists remain the undisputed kings of the hill (with the occasional queen) in universities and in the public mind. And the profession’s self-policing seems to fall to a small number of public bloggers and the occasional op-ed, which ultimately results in an ossified status structure that ends up protecting insiders reflexively and is strongly resistant to change.

Perhaps these are the wages of living in complex times – we rely on credentialed experts to tell us what is happening, especially when it comes to the economy and finance. But it doesn’t bode well for the profession, or for policy in general, when outright falsehood is sold using borrowed academic prestige.

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