Winner of the New Statesman SPERI Prize in Political Economy 2016

Tuesday, 2 August 2016

Should economics be democratised?

In the continuing fallout from the Brexit vote comes a call to democratise economics. I tend to think about these issues by drawing an analogy between economics and medicine. The reason I like this analogy is that both are stochastic sciences: people are unpredictable in terms of their behaviour and biology, at least in terms of the current state of knowledge. There remains a great deal that is mysterious. Both can use theory to a considerable degree, but both also rely on statistical analysis and experiments/trials. I am happy to acknowledge that medicine is ‘better’ in some sense than economics (although I do not really know, or know how that could be ascertained), but I would argue that any difference is of degree rather than kind.

One other similarity that is worth mentioning because it always comes up: both are hopeless at forecasting. Your doctor will not tell you how long you have to live, and can often only give you a rough idea even if you have a fatal disease. Economists get involved in macroeconomic forecasting not because users think it is accurate, but because it is marginally better than guesswork. But while doctors cannot tell you how long you will live, they can tell you that smoking will be very likely to shorten your life. Equally an inability to do good macro forecasts does nothing to refute the claim that if we make trade with our neighbours more difficult we will do less of it and this will reduce people’s welfare and incomes.

The two subjects are also similar in that key decisions are often delegated to expert committees: in the UK the MPC and NICE, for example. But when it comes to other policy decisions, the two subjects differ. Occasionally government or policymakers clash with medical experts on medical matters, but that is rare. In contrast politicians quite routinely ignore economic expertise, or choose minority views over the consensus. The difference is not hard to explain of course: political interests and economic decisions are often intertwined. This can in turn influence the discipline itself. But if you accept my analogy, this is not good for society. Those who voted for Brexit were told it would produce positive results for them in the long term, and will almost certainly be disappointed.

Is the solution to this to democratise economics? I cannot think of anyone, or at least no economist, who would object to the public knowing more economics. Some might go further, and suggest that knowledge of economics among policy makers is dangerously deficient. I would also agree that sometimes economists can learn from interactions with policymakers or even the public. But when it comes to medicine people generally do not want to know about medical science. What they want to know is what medical opinion is on key issues, and they want policymakers to make decisions that embody that knowledge.

I think the same is true of economics. Most people do not want to know the theoretical basis for why fiscal consolidation when interest rates are at their lower bound is bad for the economy, let alone the arguments that a few make against that consensus opinion. (If you read this blog, you may be an exception to this generalisation.) Instead they want to know what the consensus opinion is and how strong that consensus is. If the economics conflicts with their intuition, they might want to check that economists are answering the same question as they are. This the broadcast media generally fails to do, and the tabloids only do if it suits their political line. There are reasons for this in the way the media works, which I have discussed many times, but it would be negligent for economists to imagine it was not their problem as well.

For example in medicine I suspect you could rely on medics to be able to tell you what the consensus opinion on issues was. Unfortunately that would be less true in economics. But that is partly economists own collective fault, because the number working on subject areas can be quite large and not as well connected as they might be. To take just one example, there seemed to be a widespread perception among macroeconomists that many of the top schools taught little Keynesian economics at graduate level. It turns out according to survey data I and Andre Moriera collected that most schools do teach quite a bit of Keynesian economics.

Which leads to my punchline. Economists need to act more as a collective. We need to regularly survey economists (all economists, not just selected groups) about what they think on key policy issues, recording at the same time whether this is their area of expertise. We need spokespeople to explain any consensus in the media. When policymakers, City economists or think tanks depart from this consensus, these spokespeople need to be aggressive as a discipline in pointing this out, and not leave this to individual academics. Much as the medical profession does when rogue claims become popular. We do not so much need to democratise economics, but to organise it.



33 comments:

  1. I'd add to the parallels between medicine and economics that there are similar ethical and practical issues with doing the sorts of experiments we'd ideally like to do. 'Do no harm' is central to both.

    Also, to be charitable to Brexiters, one may argue that other aspects of welfare not captured by conventional economics (although Becker would try) - e.g. self-rule and national identity - offset the strictly financial welfare loss from Brexit.

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  2. MMR is an interesting counter-example - the media (even the BBC) were still 'reporting the controversy' years after it had become clear where the consensus lay. Still better than economics, though.

    I wonder when it got started, this idea that if somebody says X you haven't got a story until somebody else says Y - and then you report it as an argument between two people or groups of people, at best a difference of opinion, at worst a political knockabout. The media would never feel the urge to 'balance' a story about the Booker shortlist by including a statement from Mills & Boon, or a story about potential uses of graphene by including a statement from a group who believe it should be banned, but in economics the reflex seems automatic.

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  3. "The reason I like this analogy is that both are stochastic sciences [...] but I would argue that any difference is of degree rather than kind."

    Well, yes: all (empirical) sciences are 'stochastic sciences' and economics is just a 'high entropy' one. And if economics is looking for friends to help defend it against the "it's not a science" mob I think it's more likely that a physicist will understand that than it is that a medic or other relatively 'soft' scientist will (although there are some and psychology appears to be enjoying a post-"reproducibility crisis" enlightenment atm).

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  4. Simon, I'm curious about the teaching of economics today. My training is in cultural history and my sense, born out by the post-crash Economics group is that there is very little emphasis on epistemology in contemporary economics? Forgive my ignorance, but is that the case? Is a philosophy of economics widely taught or is the teaching very much dependent on the faculty/university?

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    1. It is worse than that. Methodological issues are largely ignored. I wrote about this here:

      https://mainlymacro.blogspot.co.uk/2014/05/economists-and-methodology.html

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    2. Thanks for that, Simon. Do economists not read Thomas Kuhn?
      What you describe is, to a historian, terrifying and must surely result in groupthink (the financial crisis and austerity?). Fortunately my discipline abandoned such narrow positivist approaches quite some time ago. In an ideal world all students would study the philosophy of their chosen subjects to encourage critical and flexible thinking.

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  5. I think you touch on a very valid point and I'm personally quite frustrated by the lack of real explanation or debate available on news channels in general.

    I've not studied economics but have read a few books, read some blogs and watched some videos. In my personal experience explaining something such as Austerity to, for example, my wife is very difficult. It's probably due to my lack of skills, however I also think there is a general lack of basic knowledge with most people around based concepts/views on economics, probably because it can be a very complex topic which uses very specific terms/frames of reference.

    So I agree that you should democratise economics, but would also propose you consider this more broadly, ito explaining base economics in terms that more people can understand.

    As an example I'd refer you to the work Robert Reich is doing, with some very useful videos aimed at the majority of people, such as this one on Austerity (which my wife liked): http://robertreich.org/post/131232566000

    On a side note, I'd wish more political parties use a similar approach to educate voters, rather than "convince" them ...

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  6. I guess what is meant by democratising economics is not so much public education or collective decision-making but institutionalising social responsibility, perhaps along the lines of the Hippocratic Oath (and no, utilitarianism isn't adequate).

    As the piece you link to notes, "the language of economics has become the language of government", but this is equally true of the language of medicine, most obviously in the realm of public health. The difference is that medicine at least pays lip-service to the idea that it is the servant of real people, as opposed to abstract ultility-maximisers.

    Before you can organise economics, you need to decide what it is: a social science or a form of applied mathematics (the answer is both, but ends must trump means).

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    1. Off topic, but if one profession needs to adopt the equivalent of a hippocratic oath it is accountancy, or, more accurately, the accountancy/auditing/corporate governance nexus that the big four have sewn up: advising governments on tax policy before informing their clients.

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  7. «comes a call to democratise economics. I tend to think about these issues by drawing an analogy between economics and medicine. The reason I like this analogy is that both are stochastic sciences: people are unpredictable in terms of their behaviour and biology, at least in terms of the current state of knowledge.»

    Well, they also share to a large extent another all-important property: a large part of an economist or a medical doctor's job is *advocacy*.

    Is this policy optimal? Here I have ten credentialied economists that say it is. Is this medicine safe and efficacious? Here I have ten expert doctors of medicine that endorse it.

    Precisely because both disciplines are not that definite and rigorous in their results, and even less so in their interpretation, it is difficult to prove that certain advocacy is not in good faith: grey areas can be exploited.

    So the right way to democratise the study of political economy is for every side, every interest group, to have their own well motivated (and compensated) "celebrity" advocates.

    But by and large, with some feeble exceptions, currently in political economy and medicine studies the sell-side, the big corporate lobbies, have a practical monopsony, as they provide the best "incentives" under a clever winner-takes-all system: for ambitious people a great motivator can be the small but non-zero chance to become as very wealthy as G Hubbard, G Mankiw or L Summers, and as consolation prize there is always a bigger chance of a chair endowed by the likes of Enron's K Lay (who endowed thirty five chairs).

    So given that politics/policy is a debate, "economics should be democratised" in the sense that the lower classes should take out their wallets and support those who can analyze and counter the policy proposals of the upper classes interest groups. But the upper classes, who organize themselves in cartels like the CBI etc. at the earliest opportunity, have made great strides in persuading the lower classes to stop wasting money on their own experts :-).

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    1. «"economics should be democratised" in the sense that the lower classes should take out their wallets and support those who can analyze and counter the policy proposals of the upper classes interest groups»

      Put another when there are going to be 35 endowed "Call Centre Worker" chairs of Market Economics, and the "Zero Hour Contractors" Center for Economic Freedom, and the "Barista Trade Union" pays $1,200/hour for consultancy work.

      But hey, "rugged individualism" and "positive thinking" are so fashionable.

      Sometimes I despair and think that the only times when the lower classes get a better deal is when the upper classes decide that the lower classes are people too and grant them some better living standards, from above.

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  8. 'If the economics conflicts with their intuition, they might want to check that economists are answering the same question as they are. This the broadcast media generally fails to do, and the tabloids only do if it suits their political line. There are reasons for this in the way the media works, which I have discussed many times, but it would be negligent for economists to imagine it was not their problem as well.'

    Indeed, the 'household' metaphor springs to mind. Labour politicians have singularly failed to combat it efficiently or effectively over the years. Any suggestions?

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  9. Replacing it with a mortgage metaphor....

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  10. It is of course very much more difficult for economists to come with a reliable consensus than medicine. Medicine is a solid experimental science with a strong tradition of testing any claims. Even so, the "democratic" popularity of alternative medicine indicates that many people are happy to follow charlatans. Economics is by and large not experimental and so even the mainstream economists can't agree, let alone the charlatans.

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    1. «Medicine is a solid experimental science with a strong tradition of testing any claims»

      Maybe, but not to such an amazing extent. And interpretation is very difficult. Giving big corporate pharma and health-care interests opportunity to be very good at incentivizing "their" experts to help sell whatever. Not too different from stock analysts or macroeconomists. The idea that medical product companies can influence even family doctors to push their stuff seems ridiculous, but it works so well that they spend enormous amounts on it; never mind how much they influence researchers; follow the money. In the USA the FDA is under constant vested interest assault like the SEC or the CBO (not the Fed, it is already "captured").

      Besides the «testing any claims» is not a tradition: it is a rather recent innovation. As to how scientific medicine is, never forget that in the history of "official" medicine the first known-efficacious compound was penicillin, and that's quite recent indeed, and double-blind testing is rather more recent than that. And again, interpretation is a big problem.

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  11. Great post thank you. But there is another analogy between the behaviours of medicine and economics. That of the behaviour of the patient. In the case of Brexit it is assumed that the patient will do everything they can to be economically better off and must be mad to ignore the statistically correct arguments of economists. Yet the reason people smoke, drink, eat too much and of the wrong things, compete in dangerous sports despite every health warning statistically correct doctors warn them against is because they enjoy it. Brexit is not solely about the economics. Many will bear the economic pain to enjoy the non economic benefits.

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  12. Ha. You seem to be more confident about your knowledge. Remember what Keynes said:

    "But although the doctrine itself has remained unquestioned by orthodox economists up to a late date, its signal failure for purposes of scientific prediction has greatly impaired, in the course of time, the prestige of its practitioners. For professional economists, after Malthus, were apparently unmoved by the lack of correspondence between the results of their theory and the facts of observation;— a discrepancy which the ordinary man has not failed to observe, with the result of his growing unwillingness to accord to economists that measure of respect which he gives to other groups of scientists whose theoretical results are confirmed by observation when they are applied to the facts."

    Till you pretend to be an expert, the public will keep distrusting you.

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  13. I'm not convinced that people really do want politicians to go along with medical expertise all of the time. With regard to health reorganisations in particular this is certainly not the case.

    For example, look at cases where clinicians have recommended the closure of a service that the public believes to be significant, say an A&E unit, at a community's local hospital on safety grounds. People then tend to decide they actually don't trust medical professionals with their safety quite so much after all and lobby politicians to jump on the populist, anti-expert bandwagon and get the Government to overrule the clinicians.

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  14. It is of course worrying for the 'layperson' when economists disagree among themselves. Also disturbing when they cannot explain a point they advocate sufficiently clearly that politicians and 'everyman' can understand. BUT I realised some years ago (1981) that right economic policy may depend on who we are talking about; a pensioner with savings, without savings, an exporter, an importer, married, single. I.e. politics enters in a way unlike in medicine.

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  15. I think your analogy between economics and medicine is an interesting one but I think it only goes so far. Certainly there are variations in the outcomes of both, but I suggest that most of the variation in outcomes of medical treatments is due to the host of uncontrollable additional factors rather than uncertainty in the underlying science. Variations in our genetics and biochemistry are relativley small and increasingly well-understood. By contrast, I suggest that the variation in economic policy outcomes are only partly due to the myriad of uncontrollable factors and at least as much due to the inadequacy of the underlying theory. A better analogy might be with psychiatry where there is, even to this day, a schism between the Freudians and the Jungians which reflects the schism in economic theory between the 'orthodox' and the 'heterodox'. It also suggests that it is behavioural rather than biological variation that is at issue in medicine and even more so for psychiatry and economics. Which is why a macroeconomic orthodoxy based on the inter-temporal optimizing representative agent with rational expectations, without money or a financial sector has limited explanatory power in a modern monetary economy increasingly ruled by fundamental uncertainty. It is no accident that most of the economists that 'predicted' (ar at least forewarned of) the global financial crisis were heterodox economists.

    This is not surprising if one understands how mainstream macro headed off down a rabbit hole in the late 70s, early 80s following the 'New Classical Counterrevolution', well documented in your paper [1]. Those of us that hoped that the global financial crisis (which was also a crisis for macroeconomics) would bring about an opening up to other schools of thought have been bitterly disappointed. On the contrary, the orthodoxy have increased their stranglehold. I always thought of Australia as an oasis of pluralism, but was horrified to learn recently that there will soon be no 'dissenting' economists in Australian Universities. At Cambridge, Ha Joon Chang says that when he was appointed, it was roughly half and half, but when one of his colleagues retires next year, he will be the only non-neoclassical economist on the faculty. The orthodoxy have not re-secured their hegemony by 'winning the argument' or proposing theories that help us understand the workings of a modern monetary economy (actually the opposite), but rather by securing editorial control of 'top' journals, research funding, academic appointments, and especially sponsorship of academic posts by large commercial vested interests. Quoting you from your paper on the NCCR, 'For acceptance in good academic journals, internal consistency is usually an admissibility criterion' - for 'internal consistency' read microfoundations and rational expectations which (deliberately) excludes other research approaches (especially empirical approaches) that are not based on this rather narrow and increasingly discredited paradigm. In this uniform intellectual monoculture, the prospects of macroeconomics achieving the sort of public stature that you obviously aspire to, are rather dim.

    But I like your statement 'that [the inability to provide a consensus on issues] is partly economists own collective fault, because the number working on subject areas can be quite large and not as well connected as they might be...' because it suggests that you favour some sort of rapprochement, and I wonder whether that extends also to the heterodoxy (though I agree that the lines are rather blurred)? You say that there is still some pluralism in Universities because 'most schools do teach quite a bit of Keynesian economics', but if students want to learn about the economics of Keynes they would have to go to the post-Keynesians (heterodox).

    [1] Wren-Lewis, S., 2016. Unravelling the New Classical Counter Revolution. Review of Keynesian Economics, 4(1), pp.20–35.

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  16. Very good analogy with medicine. I’m very interested in health and fitness, and have done tens of thousands of pages of reading. I like to think I’m pretty, or very, expert in both medicine and economics, although much more in economics, with over 10 years of formal training.

    Both differ from physics in that you cannot typically do ultra-precise controlled experiments. Conclusions on large issues often come from a tremendous amount of empirical and theoretical evidence combined, which, when evaluated intelligently, in sum overwhelmingly show something, for example that smoking is profoundly harmful to health and longevity.

    But in both economics and medicine, although you usually cannot make precise deterministic predictions, often you can state with great confidence means, with relatively small variances around them. You can state the average number of years lost from smoking, the typical probability of smoking severely impairing quality of life in a wide variety of ways. But yes, sometimes there will be someone’s grandpa who smoked from childhood and lived to 90.

    Good smart economics, likewise, often can give pretty good, pretty useful, stochastic estimates and forecasts. More often the problem, I think, comes from economists, or so-called economists, not using good state-of-the-art, scientific economics to make their estimate and forecasts.

    A big difference between economics and medicine is the average person trusts his own understanding and knowledge far less, and relies on expert opinion far more, in medicine than in economics.

    Moreover, there is not an area that is very commonly confused with medicine, like with economics, where there’s a very serious problem in confusing expertise in business with expertise in economics. It would be like confusing expertise in chemistry, or expertise in, say, hydrocarbon chemistry, with expertise in medicine, like a hydrocarbon expert should be good at treating heart disease. This is a very serious problem economics has that medicine doesn’t.

    I strongly agree with your conclusion, Simon. I also think it would be so valuable to survey what economists are teaching undergrads, to see if there are serious problems or deficiencies. For example, when I was an undergrad, my micro I and macro I, which are the widely taken ones, only taught classical theory, with not a word on market problems like externalities and asymmetric information, and not a word on key policy related issues, like long run growth, and the small effect on work hours of taxes, and the income and substitution effects (which could be explained quickly in intuition), until intermediate, which the vast majority of students, and voters, will never take.

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  17. I think I've said this before. Science isn't about taking a poll. What's better, the opinion of one economist who has studied the issue at hand for 20 years, or the opinion of 100 economists whose only contact with the issue was in graduate school 20 years ago?

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    1. Which is why I said information should include whether the question relates to the economist's area of expertise. And of course I'm not talking about doing science, but how science influences policy.

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    2. Simon does say, "recording at the same time whether this is their area of expertise".

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  18. This is an excellent idea. The message sent by a large group of academic economists that regularly critiqued govt policy would be powerful. If this group contained voices from overseas it adds to its credibility as they have "less skin in the game" of domestic politics. Also for balance the group should also critique opposition parties economic policies(or lack of) - in this way it won't come across as s partisan/political attack on the incumbent government.

    Think it would also be a good idea to have a better way of holding the chancellor to account - maybe a system where he would be forced to submit a report to a committee(something like the obr) that shows the workings that lead to his macroeconomic decisions which could then be independently reviewed for accuracy. For example, Osbornes decision to launch the "help to buy" scheme and extend right to buy while not increasing house building. What are the short/medium/long term affects of this strategy??

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  19. There is a big problem comparing medicine and economics.

    If doctors can cure or manage a medical problem for one person, odds are it is good for everyone who has that problem and possibly for people with other related problems. There are no trade offs between curing person A as opposed to person B, save for the economic issues of allocating societal and medical resource. Even the doctors come out ahead as other doctors succeed.

    In economics, all sorts of parties are inherently in conflict. Employers would like to hire great workers at the lowest possible wages. Workers would like to make as much money possible. Competing companies would like to make more money or have greater market share than their rivals. Entire industries sometimes find themselves in conflict with others as with fossil fuels as against renewables or oil as against gas.

    This inherent conflict makes it much harder to develop an expert consensus. Even medicine has its dissenters, but the general alignment and effectiveness of medicine limits the damage this group can do. Economics doesn't just have dissenters, it has factions. Economics research is relatively inexpensive compared to medical research, so it is easy to fund a factional school. Worse, as with medicine, politics gets involved, so economic factions align with political factions and no opinion is less suspect than any other.

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    1. In fact treatments often involve trade-offs, but the individual being treated can choose. However in some cases society wide medical programmes do involve just the kind of distributional impacts economists are involved with, and it is there where a lot of the conflict between medics and society can arise.

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  20. The Economic Society of Australia runs an expert panel poll on topical issues. In response to a proposition on a topical question like this one on the appropriate fiscal stance, they ask for a response (strongly agree to strongly disagree), a 'confidence' score (0-10) and a short comment.

    It's fascinating and an excellent way of getting a sense of the range of expert opinion on a topic.

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    1. That is very interesting and new to me. Many thanks.

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  21. I think the analogy with medicine is egregious because you are assuming that economics is on solid scientific ground. I honestly hope the treatments I get from my doctor are not on the scientific level of RBC or the New Keynesian model. I hope they do not take such theories seriously. I most disciplines this would not be considered serious theory. I do not think there are Prescotts, Sargents or Famas in medicine with any credibility and I do not think such people would get nobel prizes for medicine. The basis of medical prescription and the credibility of their practitioners would be on track record. In economics, whether it ticks a mathematical model is what counts, not widely or deeply informed historical analysis or whether people understand or solve society's problems - not these days anyway.

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  22. Does the Washington Consensus of Williamson fit into being an example of what you have proposed - document on consensus?

    If so, do you think such consensus documents will end up receiving lot of flak from people, the way Washington Consensus has received?

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  23. Very well done with this, Simon. I think it's also worth saying that if economists sometimes make forecasts that prove to be wrong, they can also make forecasts that prove to be right ALTHOUGH COUNTER-INTUITIVE. Keynes' 'paradox of thrift' is the obvious case in point. This is one of the key reasons why economists and, indeed, social scientists more widely need to be able to play a role as public intellectuals: in the social policy arena, for instance, Nordic universal welfare states are equally counter-intuitive to market fundamentalists. It's not that we don't need maximum democratic participation in public debate--it is that the public square needs to be illuminated by impartial experts if such debate is not to degenerate into balkanised shouting or populist scapegoating, which it all too readily can: there is a fine line between the herd mentality and the wisdom of crowds.

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