Stephen Kinsella: Economists (I'm one) should be made to pay for their mistakes
Strike off an economist who knows one thing but publicly says another
YOUV'E seen him on TV. He's usually in a suit. There's something a little haughty about him. He understands something you don't. He's an economist and he's here to help. (He's almost always a he). He went to graduate school, studied the economy, something has gone wrong, and now the media want him to tell their audience what's going to happen next.
I've been this guy quite a few times, and I've always felt a little uncomfortable about the quality of my knowledge. Holding forth as an expert on the economy is something I'm supposed to do. Despite all the training I received, how confident can I be that what I'm saying has any correspondence to reality? And what consequences are there when I get something wrong?
There's an old adage about economists: the more we mess up, the more the economy needs us. So right now being an economist is a bit like being an undertaker during an outbreak of plague: it's not pretty, but business is good.
In Ireland, economists are ubiquitous public figures. No Sunday radio show is complete without one. This is not the case for sociologists or political scientists who can claim an expertise that the public (and therefore the media) should be interested in.
As a card-carrying economist (yes, there is a card) I'm not here to bash economists. There will be lots of other columnists to do this.
Rather, my questions today are as follows. How do economists know things? Where do their predictions about the economy come from? How much should we trust them? What happens to the economists themselves if they are wrong?
American science writer Michael Sherman once wrote: "Humans are pattern-seeking story-telling animals and we are quite adept at telling stories about patterns, whether they exist or not."
Economists are no different. If they are any good they look at the data produced by the economy -- such as the value and volume of private consumption, or investment, or government spending, or export and import volumes, or taxation or bond yields -- and try to tell a story that fits the pattern they see.
If it shows the value of private consumption expenditure is rising, the economist will reasonably infer it will continue to rise until some threshold is met. We're basically fitting lines through points on graphs and describing the lines.
The story economists tell about this pattern is much less scientific. It is usually conditioned on the economist's training. If consumption is going up and the levels of personal debt are increasing and prices are rising with wages, some economists will say: "Great. Let the market allow the interest rate on debt to rise -- that will cut out some of the higher levels of debt and reduce consumption increases into the future. No need to do anything."
THE story each economist tells depends on several important factors. First, their own training. Second, their individual political biases. Third, who is paying them.
When it comes to an economist's predictions, it is important to gauge the strength of their argument relative to the source of their salary. Here there is not much difference between economists and other professionals. Like other professionals, if something goes wrong and our analysis should have caught it, economists should personally pay a price. In the medical and legal professions one is insured against malpractice. The same should happen with economists. They should be regulated, with a professional body and enforced ethical standards.
Where it is conclusively shown that an economist knew one thing but said another, that economist could be publicly struck off and barred from using the title.
This would temper some of the more egregious pronouncements. It would also make being -- and hiring -- an economist more costly, and make the profession more regulated. There are costs to every change, but if economists are public figures the public trusts, it makes sense to charge those who abuse that trust.
Next week, my plan is to show you what economists do when they aren't writing columns in newspapers. I think you'll be surprised.
Stephen Kinsella lectures in economics at the University of Limerick