Nearly a century ago, Henry Louis “HL” Mencken provided a useful lesson in this regard in his famous essay on economics, “The Dismal Science”. In it, Mencken noted the example of a Professor Nearing, who was kicked out of the University of Pennsylvania because his “efforts to get at the truth disturbed the security and equanimity” of those wealthy few who controlled the university. “He was thrown out because he was not safe and sane and orthodox,” Mencken explained.
Dr Nearing challenged the status quo by trying to speak the truth, and power did not like what it heard. He paid the price. This price was not lost on his colleagues, certainly not on the members of the profession whose theories, as Mencken pointed out, often centred on price signals.
Even today, academics who earnestly aspire to seek out truth see similar examples among their colleagues. Those who dare to venture outside the box of orthodox economics–outside the “safe and sane”–are met with the language of marginalisation and a refusal to consider their arguments on their own merits.
Instead, they face constant attempts to pick apart their methodology and undermine their credibility as professionals. They aren’t granted the assumption of competence, unlike mainstream economists who have been blessed with the aura of legitimacy by those with power. Opponents “play the man and not the ball”, as soccer fans would say.
As Mencken contended, economists sense what is too dangerous to present. Even if this awareness is not fully conscious, it can seep through in avoidance rituals–hiding in the monastery and behind the pretence of being “scientific”–that have been a hallmark of mainstream economics over the last 50 years.
What this means is that instead of pursuing economic truth in service to society, well-meaning economists are all too often focused on proving their chops in the arcane rituals of modelling techniques and working from within very limited paradigms. Far more prevalent than simple corruption are those who tacitly accept the status quo because they know the price of challenging it. (Norbert Häring and Niall Douglas provide an impressive account of this type of distortion in professional analysis in their recent book, Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards; see references.)
This dynamic becomes increasingly dangerous as wealth becomes concentrated in a particular sector, as it has in finance in recent years. The clarity of analysis of that sector ceases to be dispassionate and takes on the aura of fear–a fear of tangling with those who could fight back and hurt you. And these rituals of avoidance, as we have seen in the case of finance, can have enormous real costs.
The deference that this concentration of wealth and power engenders in the economics profession creates significant negative externalities for the rest of society, as we experienced very starkly in 2008. This is the cost of a dynamic where it is more rewarding to be safe and wrong, than to challenge the orthodoxy in pursuit of what’s right. The nail that sticks out does get hammered.
But there is another dynamic at play here that can be an adverse side effect of economists’ well-meaning intentions. When the world is faced with uncertainty, as it is now, there is a great temptation for experts to provide false resolution to the anxiety this uncertainty creates. The short-term rewards for doing so can be considerable and exert a distorting pull on economists’ analytic abilities. Being a “guru” is a siren song of temptation, if there ever was one. Who ever won a Nobel Prize for saying “Honestly, I do not know”? Rarely does one become famous for providing a narrative that is unsettling. More often the emotional reaction to a disturbing vision is to relegate it to the footnotes, or the dustbin.
This temptation can also interact dangerously with the rituals of avoidance detailed above, as it did in the lead-up to the financial crisis. The belief in a stable and knowable future led to risk-assessment models in the financial sector that collapsed in the face of real turmoil. The desire to provide false resolution and the deference to power combined to provide descriptions of an economic reality that were in fact quite useless to those who earnestly wanted to guide the economy for the benefit of society.
So where does all this leave policymakers? How are they to determine good economic analysis from bad? There are no easy answers, but there is one important lesson to remember: making good policy sometimes means being willing to entertain uncomfortable truths. Conventional wisdom is often unwise. Real economic analysis does not always recommend outcomes that are politically safe or within the contours of affirmation by established power. Real economic analysis is a public good.
A willingness to listen earnestly to those who bring alternative points of view to the table is essential. An understanding of economic reality doesn’t emerge simply from one vision of the world, but from an active and ongoing conversation with many visions. In the past, policymaking circles have become too dominated by one view of economic reality and have ignored any information outside the narrow orthodoxy. The problem was not a lack of information or too much information, but an unwillingness to consider information that wasn’t legitimised by power. Active controversy may be our best remedial antidote to the blindness that arises from intimidating consensus.
Policymakers, much like economists, face the same challenges of speaking truth to power and resisting the comforts of false certainty. And as is the case for economists, policymakers who would earnestly serve society require not just intelligence or wisdom. They require courage to think outside the box, to do what is not safe and to listen. True leadership can be the loneliest of arts.
Häring, Norbert and Niall Douglas (2013), Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards, Anthem Press, New York.
Mencken, HL (1922), “The Dismal Science”, chapter in Prejudices: Third Series, Alfred A. Knopf, New York.
Visit the Institute for New Economic Thinking at ineteconomics.org
© OECD Observer 294 Q1 2013