Experts and Elites

It’s like 2016 all over again. Lots of forecasts of how much poorer we will be under different Brexit scenarios, which if the last time this happened is anything to go by will be ignored or dismissed by around half the UK population. Perhaps I should call for a total and complete shutdown of pronouncements by experts until our country's representatives can figure out what the hell is going on.

More seriously, what has led to this apparent distrust in the words of experts? I want to focus on experts in particular, rather than the more general concept of elites, and even more specifically experts from academic institutions or places directly tied to them. Will Davies has a nice account of the many reasons why distrust in politicians in the UK has increased, but a lot of what he has to say does not really apply to academia.

I have to admit to being completely partial in believing that once society starts ignoring what the evidence says it is on a road to ruin, and academics in the sciences (including the social sciences) have as their raison d'etre trying to understand evidence. And to be fair, much of society understands that. As an IPSOS MORI survey consistently shows for the UK, academics (‘professors’) regularly come close to the top of groups that people trust most.

Furthermore, if anything public trust in professors or scientists has been growing rather than falling over time. The same is also true of social trust in the UK, contrary to many popular accounts.

These results suggest that there has not been any recent decline in how much academics are trusted. But if you replace ‘professors’ by ‘economists’, levels of trust decline sharply. [1] And for good reason. I would have fairly low levels of trust in probably what most economists I see in the mainstream media say, and this is because I most frequently see economists in the media who are not academics. They are typically doing one of two things. The first is making up stories (sometimes plausible stories, but still based on zero evidence) about market movements. The second is describing macro forecasts: a necessary but highly unreliable activity.

Many journalists do not understand the difference between these kind of forecasts (‘unconditional’) and the kind of analysis presented on the economic effects of Brexit (‘conditional’). The analogy I tend to use is between a doctor telling you that you are more likely to die of a heart attack if you eat too much fat (‘conditional’), and a doctor trying to predict your exact time of getting a heart attack (‘unconditional’). This failure to understand the difference between the two activities is the first major reason why academics who say Brexit will reduce living standards are not trusted as much as they should be. It is predominantly a failure of the media rather than economists themselves.

I sometimes wonder, however, if certain journalists and politicians deliberately choose not to understand the difference between the two because it suits them to remain ignorant. This brings me to the second reason that academic economists may be ignored or dismissed over Brexit, and that is because certain elites have an interest in doing so. Here is Stewart Wood reacting to Jacob Rees-Mogg’s comments on Mark Carney after the Bank released some of its Brexit analysis.

The Bank’s analysis is of course not beyond criticism. [2] But the attacks of the Brexiter elite are quite deliberately not economic in character but political: Rees Mogg claimed Carney is a second rate politician (a second rate foreign politician!) and his forecast is designed to produce a political outcome (‘Project Hysteria’). The idea is to suggest that these projections should not be taken as a warning by experts but instead as a political act. Once again, I’m not suggesting we should never think about what an experts own interests might be, but if you carry this line of thought to the Rees Mogg extreme you undermine all expertise that is not ideologically based, which is exactly what Rees Mogg wants to do.

This I think is the second reason why the view of the overwhelming majority academic economists that Brexit will be harmful is going to be ignored by many. Since Mrs Thatcher and the 364 economists, the neoliberal right has had an interest in discrediting economic expertise, and replacing academic economists with City economists in positions of influence. (Despite what most journalists will tell you, the 364 were correct that tightening fiscal policy delayed the recovery.) Right wing think tanks like the IEA are particularly useful in this respect, partly because the media often makes no distinction between independent academics and think tank employees. Just look at how the media began to treat climate change as controversial.

But isn’t there a paradox here? Why would members of the public, who have little trust in politicians compared to academics, believe politicians and their backers when they attack academics? In the case of Brexit, and I think other issues like austerity, these elites have two advantages. The first is access. Through a dominance of the printed media, a right wing elite can get a message across despite it being misleading or simply untrue. Remember how Labour’s fiscal profligacy caused record deficits? Half the country believe this to be a fact despite it being an obvious lie. What will most journalists tell you about Brexit and forecasts? My guess is that forecasters got the immediate impact of Brexit very wrong, rather than the reality that what they expected to happen immediately happened more gradually. Why will journalists get these things wrong? Because they read repeated messages about failed forecasts in the right wing press, but very little about how GDP is currently around 2.5% lower as a result of Brexit, and real wages are lower still.

The second is that the elite often plays on a simple understanding of how things work, and dismisses anything more complex, when it suits them. Immigrants ‘obviously’ increase competition for scarce public resources, because people typically fail to allow for immigrants adding to public services either directly or through their taxes. The government should ‘obviously’ tighten its belt when consumers are having to do the same, and so on. In the case of the economic effects of Brexit, it is obvious that we will save money by not paying in to the EU, whereas everything else is uncertain and who believes forecasts etc.

As the earlier reference to Mrs Thatcher suggests, there is a common pattern to these attacks by elites on experts: they come from the neoliberal right. If you want to call the Blair/Brown years neoliberal as well, you have to make a distinction between right and left. The Blair/Brown period was a high point for the influence of academics in general and academic economists in particular on government. As I note here, Iraq was the exception not the rule, for clear reasons. Attacks by elites on experts tend to come from the political right and not the left, and the neoliberal right in particular because they have an ideology to sell.

[1] See this YouGov poll. Thanks to John Appleby for finding this for me. 

[2] For example, including a ‘worst case’ No Deal scenario designed for stress testing banks in a graph alongside more standard projections of the impact of the Withdrawal agreement is just asking for misinterpretation of the former.

Why Brexit is a neoliberal project

Neoliberalism is generally associated with extolling the market, encouraging globalisation and generally being on the side of business. As Brexit will reduce the size of markets available to UK firms and therefore reverse globalisation in the UK, and is definitely not what most of UK business wants, how can it be neoliberal?

A good place to start is to go back to a discussion of what free trade means. Most people, and certainly most economists, would think that free trade means free to trade. Following that definition, harmonising regulations across countries which enables firms to trade much more easily in many countries is increasing free trade. The ideal is one single market, which is what the EU has achieved for goods and many services.

Many neoliberals would think that way. But others would see free trade as meaning free from any kind of state interference. The Single Market, with a court to judge whether its rules and regulations have been broken or not, does not sound free in that sense. Their ideal becomes trade that is as free as possible from any kind of state regulation. They do not want harmonised regulations, but the minimum amount of regulations.

If seeing free trade as meaning free from regulations on trade seems strange, it shouldn’t. If you look at how many neoliberals use the term free market that is exactly the what they often mean. If someone says that executive pay is determined by the free market, they do not mean a market free from what economists would call imperfections but just free from government interference. Unlike ordoliberals, neoliberals of this type would call a market with a monopoly producer free but a market where competition policy broke up monopolies as suffering from state meddling.

I had original thought that the Global Britain idea that Brexiters go on about was pure deflection from the awkward fact that Brexit would restrict trade. I think I was being unfair. Being true neoliberals Brexiters do not want to destroy trade, but trade has to be as regulation free as possible. Far better, therefore, for the UK to trade with the US or emerging markets that had weaker regulations than with the Single Market. The problem with the Single Market, from the Brexiters viewpoint, is that it locks in strong regulations of various kinds.

This helps explain why so many Brexiters also appear to be strong neoliberals. Brexit is like striving for a kind of neoliberal utopia, in contrast to other neoliberals like Osborne and Cameron who were prepared to compromise over regulations for the benefit of access to a bigger market. And just as neoliberals have no worries about tricking the public to vote for their utopia by pretending it was something very different, they also have little time for firms that cannot understand that what the Brexiters are doing will ultimately be for their own good. Politics as marketing, better described as deceiving of the public, is a common neoliberal trait.

The Brexiters are just one more group inspired by their own vision of neoliberal Nirvana. While Osborne and Cameron were prepared to settle for a small state, the Brexiters want that along with as few regulations as possible. Both obtain their vision deceitfully, and are prepared to inflict untold damage on the economy to get what they want. Like all good Leninists they believe that in the end (for Rees-Mogg 50 years) it will all be worth it. Which means if they get their way we will endure half a century of economic damage only to demonstrate their vision was just one more neoliberal fantasy, 

Brexiter nonsense and policy entrepreneurs

Brexiters typically sound convincing if you know little about what they are talking about. Ian Dunt takes a typical example from Rees-Mogg (still favourite to be next Conservative leader). Rees-Mogg asserts, with absolute certainty, that a House of Lords committee have missed a crucial aspect of trade law related to WTO rules. Trade experts spend some time scratching their heads wondering what on earth he is talking about. They finally work out where the idea comes from, and why it has next to zero applicability to Brexit. (See also Jim Cornelius here.)

As Dunt points out, nonsense of this kind is effective. Because broadcasters often fail to match Brexiters with trade experts, they get away with their nonsense. By the time the nonsense is revealed as such, and enough people know why it is nonsense. the discussion has moved on and new nonsense appears. The fantasy that is Brexit remains intact at the level of public discourse.

Politicians like Rees-Mogg are not able to generate this nonsense themselves. How could they when they seem to spend most of their lives going from one broadcast studio to the next. Because this nonsense normally has some tenuous connection to reality, it has to come from someone with some knowledge of international trade and trade agreements. Welcome to the policy entrepreneur.

The term policy entrepreneur comes I believe from Paul Krugman’s first book from 1995, Peddling Prosperity, which unfortunately remains as relevant as ever. The book begins with the Laffer curve and the economists - including Laffer - who promoted the idea that cutting taxes would raise revenue. It is a typical piece of nonsense. It takes the reality that if taxes were 100% lots of people would stop working, and mutates this into the idea that taxes are already so high that cutting them would encourage more growth such that tax revenue will rise. It is typical political bullshit: giving an imagined respectable gloss on something that too many Republicans just wish were true.

But in the latter part of Peddling Prosperity things got personal, as Krugman describes how different policy entrepreneurs took some of Krugman’s own research and used it in a way Krugman would not to lobby President Clinton for trade protection. Economic theory suggests that if a profitable opportunity arises and there are no barriers to entry people will exploit that opportunity. I think the policy entrepreneur is a good example of that happening. Some politicians want to pursue a policy but want some kind of rationalisation for it, and the policy entrepreneur steps up with some nonsense erroneously derived from economics or some other discipline to provide that veneer of respectability.

Policy entrepreneurs can be academics: in the UK the most obvious example many would point to is Patrick Minford. But they can just be good lobbyists, who put themselves in the right place at the right time. In the case of Brexit, the policy entrepreneurs from whom the Brexiters get most of their information are in the Legatum Institute. BuzzFeed has a very good profile of their until recently director of economic policy, Shanker Singham. It is worth quoting from it.

“BuzzFeed News spoke to multiple economists, policy wonks, Conservative advisers, politicians, and journalists who said they’re baffled that he’s become so prominent in the Brexit debate. They say his standing in the trade world has been overblown. They don’t dispute that he knows the subject, but most hadn’t heard of him before he emerged at Legatum. They find it exasperating that he’s been portrayed in the UK as a vastly experienced trade negotiator, as if he were one of the decision-makers in the room when the world’s biggest trade agreements were hammered out. He wasn’t that close to the action, they say.”

But of course someone with more experience or more knowledge could not take Singham’s place, because they would not be the true believer that Brexiters require. When you have faith as the Brexiters have, you do not seek real knowledge, but just enough facts to sound good and thereby promote the cause.

Policy entrepreneurs, whether they are seeing a profit opportunity or really are true believers, are a symptom that what I call the knowledge transmission mechanism has broken down. As Krugman’s book indicates, Brexit is not the first time that policy entrepreneurs have helped politicians enact destructive policies. Here I argue that that the knowledge transmission also broke down when it came to austerity. (Paper here.) It is possible for policymakers to use intermediaries like civil servants to find the best research and use it - it has happened in the past - but today it seems like the exception rather than the rule.

Academic knowledge about economic policy is not just another opinion

Does the financial crisis reveal that economists are at the leeches and mercury stage of their subject, and as a result policy makers and the public have every right to ignore what they say? Does the fact that economists working in finance failed to recognise the prospect of a systemic crisis, and that macroeconomists both took finance for granted and as a result failed to investigate financial-real links, mean that we should ignore what economists say when it comes to Brexit?

Speaking for my own subject, I think the financial crisis does raise serious questions about the methodology macroeconomists rely on, as I have explained at length elsewhere. But does it mean that everything macroeconomists have learnt in the last 80 years is virtually worthless, or at least no better than the opinion of the average politician? Why don’t we look at what has happened since the financial crisis.

Macroeconomists, having learnt the lessons of the 1930s, immediately recommended that policy makers do three things after the crisis: cut interest rates sharply, embark on fiscal stimulus and bailout banks. Policy makers took that advice in 2009, and as a result we avoided another Great Depression. Many said that rising government debt was sure to send interest rates on that debt rising: academic economists using basic ideas from Keynes said they would not and they were proved right. Many others said that Quantitative Easing (central banks creating money to buy government debt) would cause hyperinflation, but again academic economists looking at more modern New Keynesian models said that was nonsense and again they were right.

You might claim that in all this economists were just advocating what was obvious. The acid test came in and after 2010, when fiscal stimulus turned to austerity. What evidence we have suggests this move was opposed by a majority of academic economists, a majority that grew over time. There was a minority that supported austerity, at least for a time, and they gained a lot of publicity because politicians latched on to what they had to say. But the majority followed both textbook and state of art economics, and this majority was right. The recovery would have been stronger and faster if politicians had gone with this majority.

If we look back before the financial crisis at UK macro policy, we can again look at the record of economics compared to politicians. The obvious place to start is with the 364 economists, who despite all attempts by politicians and think tanks to suggest otherwise were right: tight fiscal policy in the 1981 budget delayed a proper recovery by over a year. We can look at the following recession in the early 1990s. A key driver behind that was the UK joining the ERM at far too strong an exchange rate. Here it gets personal. With colleagues at the National Institute I undertook what was acknowledged at the time to be the most comprehensive analysis of the appropriate entry exchange rate, and we argued that our entering at the then current rate was folly. We were ignored, and as a result the UK was the first to be kicked out of the ERM in 1992.

The next time the UK had to decide to join in this case the ultimate fixed exchange rate regime, the Euro in 2003, it was the economics that persuaded the Labour government not to join. In this case macroeconomic analysis played a critical role in making the right decision.

All this suggests to me that macroeconomics, if we compare it with medicine, is well beyond the bloodletting stage. It would be very surprising if we were not, given 80+ years of study and the huge amounts of data now available. Of course that does not mean academic macroeconomics will not make mistakes, and of course unconditional forecasters of the kind you read about endlessly in the papers will always get things wrong: our own models tell us they will. But when it comes to macroeconomic policy, experience suggests you are much more likely to get economic policy right if you ask an academic macroeconomist than if you ask anybody else. [1]

The other key thing to say is that the discussion above has virtually nothing to do with the long term impact of Brexit, which depends on international trade. The key bit of analysis that means trade with the EU cannot be simply replaced with trade elsewhere are gravity equations. Gravity equations do not come from theory but from the data: countries are much more likely, even today, to trade with near neighbours than far away countries after allowing for other factors. So when Rees-Mogg suggests that the Treasury must have fiddled the numbers, when the government’s analysis confirms those of other studies that Brexit will be costly for all of us, we know he is slandering civil servants for his own political gain. That he is also the favorite to replace May as leader of the Conservative party tells you all you need to know about the current mess the UK is in and why it is in this mess.

Of course we do not condemn engineering science when a new bridge wobbles or an oil rig fails, and we do not say that all medical science is nonsense when medics get things wrong, as they frequently do. But with economics, there are too many people who either want to replace the mainstream with their own school, or who like Rees-Mogg want to discredit economics because they suggest his preferred policy is harmful. As a result, whenever economics does make mistakes, as it will, there will be plenty of people around who want to bury the whole discipline. But when you look at all the evidence and not just one observation, as economists are trained to do, you find that you are better off following the advice of academic economists when it comes to economic policy than anyone else.

[1] The argument that academic economists should be modest or humble when giving their views should be seen in this light. They should certainly be honest about their own views compared to their colleagues, and they should also if they are given the opportunity express the uncertainties. But being modest and humble should never mean leaving politicians unchallenged when they proclaim economic nonsense. 

The accidental tax credit cuts?

This is a sort of companion piece to my earlier post about the centre-left in UK politics

I complain a lot about the UK media and its coverage of economic issues, so I should in fairness note the occasions when it does its job well. Here is Newsnight last night - look around 18 minutes in. The House of Lords have just voted to delay Osborne’s cuts to tax credits. We have a discussion chaired by Evan Davis between the Labour peer who helped achieve that vote, and two Conservative politicians: Jacob Rees-Mogg from the right of the party and Tim Montgomerie from the left.

The first good point is when Rees-Mogg trots out the standard government line that although these cuts to tax credits will hurt the working poor (a lot), taken as a package with the increase in the minimum wage and changes to tax thresholds they will not. Everyone, including Evan Davis (who once worked at the IFS), turns on him to tell him he is wrong. That is good journalism: when a government tells lies they should be called out. Rees-Mogg’s response about being naive in trusting his Chancellor is a delight.

In contrast Montgomerie acknowledges what the cuts do and how contrary they are to the government’s rhetoric about helping people into work and reducing poverty. The second, and even better point, is when at the end Davis asks Montgomerie where on earth he thought the pre-election welfare savings the Conservatives proposed were going to come from if it was not cuts to tax credits. It was an excellent question, and the response was I suspect quite honest (as Montgomerie tends to be). The Conservatives never expected to win the election. Instead their manifesto was an initial bargaining position, and things like cuts in tax credits were expected to be traded away in coalition negotiations.

This tells you how weak the centre-right is within the Conservative party right now. If the Chancellor and the majority of Conservative MPs thought the same way as Montgomerie, then their response to their election victory would not be to carry out the elements in the manifesto they expected to bargain away. It would be so easy for the Chancellor after the election to find some pretext not to cut tax credits. Instead Osborne went ahead, hoping that his control of so much of the media (and what the Treasury publishes) would mean that he could get away with the gulf between what he claims and what he actually does.

The weakness of the centre-right in UK politics has been masked for a long time by Cameron’s pre-2010 spin, a few progressive social policies and the restraining hand of the Liberal Democrats within the coalition. As I wrote in that earlier post, I strongly suspect a strong political centre (left or right) is vital for good governance, and that both the UK and Europe is suffering from its absence.The big question people like Montgomerie have to address is why, over the next five years, they will not suffer the same fate as the centre-right within the Republican party in the US.