Economic expertise in hard times

Spanish version

In times of crisis, political decision-makers often appeal to economic experts to diagnosis economic ills and prescribe policy solutions. The tendency to appeal to experts is strongest when the crisis involves complex financial, monetary and fiscal issues such as those currently facing Spain and the Eurozone as a whole. In the extreme, experts themselves are chosen for positions of high political authority, as in the selection of technocratic Prime Ministers Mario Monti in Italy and Lucas Papademos in Greece in recent years. The vast powers of the European Central Bank also rest in part on claims to economic expertise. These patterns of decision-making reflect belief in “technical” solutions to economic problems.

One problem with experts, however, is that they often disagree. On the one hand, there are those such as Nobel Prize winners Paul Krugman and Joseph Stiglitz, who criticize the policies of fiscal austerity adopted on both sides of the Atlantic. On the other, there are those such as Hans-Werner Sinn, the German economist who argues that the bailouts of Greece, Portugal and Ireland have already been excessive.

In principle, citizens and politicians want to know whether a consensus exists among the relevant community of experts. When there is an overwhelming consensus – as with the unanimous view among climate scientists that human-created carbon dioxide causes global warming – then expert opinion provides a strong warrant for policy action. The difficulty is that it is hard to evaluate the degree of consensus from the outside. Only experts themselves are in a position to report on collective expert opinion. But when there is disagreement and debate, it is difficult for experts themselves to assess the extent to which their own opinions receive broad support. The temptation to believe that scientific opinion is on one's own side is strong.

One way to get a sense of the prevailing wisdom in the economics profession is a survey conducted by the Booth School of Business at the University of Chicago (http://www.igmchicago.org/igm-economic-experts-panel). Since 2011, the University's Initiative on Global Markets has surveyed a small group of economists at top American economics departments about current policy debates. Like all such efforts, this survey has its limitations: the study represents only the very elite of the economics profession in the United States (though some prominent European economists working in the US are included). Moreover, survey seems to have been designed to showcase consensus rather than identify debates. Nevertheless, the survey provides important insights into the state of opinion in the economics profession.

The economists surveyed agree about a great many things. For example, asked whether free trade improves economic efficiency and whether the gains to consumers outweigh losses to workers, nearly all the respondents agreed – an unsurprising finding, given the broad support for international trade in the economics profession. The survey also found consensus about many other things – economists are united in a dislike of Cuban economic policies, opposition to a restoration of the gold standard, support for permitting more highly skilled immigrants to enter the United States, and so on. Some researchers have pointed to these findings to suggest that there is a broad consensus among economists on most important issues.

There is also some consensus on the nature of the problems facing Europe. For example, respondents agree about the risk of contagion of banking collapse across national boundaries. Similarly, they agree that rising national debt levels and can become unsustainable though self-reinforcing feedback effects. In December 2011 (as sovereign interest rates in Europe were reaching ever-higher levels), respondents agreed that the Italian national debt faced a high risk of such a process.

When it comes to policy prescriptions, however, there is less agreement. Take one of the most important current policy debates: the issue of austerity. The survey addressed this issue by asking respondents about the effects of the stimulus package adopted by the Obama administration in 2009. Although respondents mostly agreed that the stimulus lowered the unemployment rate, they were split on whether the costs of stimulus outweighed the benefits. Similarly, respondents were divided roughly evenly on the merits of the Greek bailout and whether the indebted Southern European will be able to repay their debts. The survey also found widely dispersed opinion on the unconventional monetary policy conducted by the Federal Reserve – implying that a similar debate would be found regarding recent polices of the European Central Bank.

There is little agreement in part because there is a great deal of uncertainty. For example, on the issue of whether some form of sovereign default among indebted peripheral European countries (including Spain) is necessary to resume growth in the Eurozone, a sizable majority of respondents expressed uncertainty or declined to respond. Among those that did venture an opinion, those arguing for default were opposed roughly evenly to those arguing against it. The same experts who agreed that Italy's public debt was at risk of spiraling out of control were highly uncertain about whether there was a plausible scenario for the Italian government to correct its debt trajectory. Thus, agreement on diagnosis does not appear to extend to policy prescriptions.

Los expertos en economía en tiempos inciertos

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On balance, the experts often agree on the problems but more rarely on solutions. This suggests that the kind of consensus that would warrant strong deference to economic expertise is absent. At bottom, resolving the crisis of the Eurozone involves such fundamental uncertainty that expert opinion offers a very imperfect guide. Political decisions may come cloaked in the language of technical consensus, but the state of the art in the economics profession does not provide a strong warrant for such claims.

Tod van Gunten is Junior Research Fellow at the Juan March Institute. He obtained his PhD in Sociology at the University of Wisconsin (Madison).