Home > Uncategorized > Economists keep getting it wrong because the media coverup their mistakes

Economists keep getting it wrong because the media coverup their mistakes

from Dean Baker

Most workers suffer serious consequences when they mess up on their jobs. Custodians get fired if the toilet is not clean. Dishwashers lose their job when they break too many dishes, but not all workers are held accountable for the quality of their work.

At the top of the list of people who need not be competent to keep their job are economists. Unlike workers in most occupations, when large groups of economists mess up they can count on the media covering up their mistakes and insisting it was just impossible to understand what was going on.

This is first and foremost the story of the housing bubble. While it was easy to recognize that theUnited States and many other countries were seeing massive bubbles that were driving their economies, which meant that their collapse would lead to major recessions, the vast majority of economists insisted there was nothing to worry about.

The bubbles did burst, leading to a financial crisis, double-digit unemployment in many countries, and costing the world tens of trillions of dollars of lost output. The media excused this extraordinary failure by insisting that no one saw the bubble and that it was impossible to prevent this sort of economic and human disaster. Almost no economists suffered any consequences to their career as a result of this failure. The “experts” who determined policy in the years after the crash were the same people who completely missed seeing the crash coming.

We are now seeing the same story with trade. The NYT has a major magazine article on the impact of trade on the living standards of workers in the United States and other wealthy countries. The subhead tells readers: 

“Trade is under attack in much of the world, because economists failed to anticipate the accompanying joblessness, and governments failed to help.”

Of course many economists did not anticipate the negative impact of trade, but of course many of us did. The negative impact was entirely predictable and predicted. (Here are a few fromCEPR, there are many more books and papers from my friends at the Economic Policy Institute.) The argument is straightforward: trade policy has been designed to put manufacturing workers in direct competition with low paid workers in the developing world. This costs jobs and puts downward pressure on the wages of these workers. It also puts downward pressure on the wages of less-educated workers more generally, as displaced manufacturing workers seek jobs in retail and other sectors. Stagnating wages and increasing inequality are the predicted result of this pattern of trade, not a surprising outcome.
If economists were like custodians and dishwashers, the failure to recognize this obvious outcome of trade policy would have put them out on the street. Instead, we get major news outlets like the New York Times, telling us this is all a remarkable surprise. No one could have seen that trade would have bad outcomes for large segments of the workforce. Rather than lose their jobs, economists can still draw comfortable six figure salaries as they tell reporters how it was impossible for them to understand the economy.

Economic theory tells us that if economists don’t face consequences for completely messing up on the job then they have no incentive to get things right. If the custodian never pays any price for not cleaning the toilet, then they won’t clean the toilet. In the same way, if the media and the country always grant a “who could have known” amnesty to large chunks of the economics profession when it gets things completely wrong, then there is no reason to expect that economists will ever get things right. All they have to do is say the same things as other elite economists say, and if it turns out to be wrong, the NYT will just run major news articles explaining that no one could have known better.

There is one other important point that needs emphasis here. There was nothing inherent to trade that required growing inequality, it was the structure of trade policy that gave us this result. There are millions of very bright ambitious people in the developing world who would be very happy to study to meet U.S. standards and work as doctors, dentists, lawyers and other professionals in the United States. We could have designed trade agreements to facilitate this process.

The result would be massive economic gains in the form of lower cost health care, dental care, legal services and other professionals services. In the case of physicians alone, if the increased supply brought the pay of our doctors down to the levels of Western Europe and Canada, we would save close to $100 billion a year. This comes to roughly $700 a year in savings for every family in the United States. And, this would lead to a reduction in inequality.

Our elite economists have chosen not to discuss this sort of trade opening. (They also rarely discuss reducing rather than increasing protectionist barriers like patents and copyrights.) These issues are discussed in more depth in my forthcoming book, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer (coming to a website near year in October). But the key point here is that economists should know better, and if they were doing their job, they did.

  1. September 30, 2016 at 2:08 pm

    It gets worse. The so-called social science of economics: There is even a hint among some – strangely even to include those who are in the atheist camp of raw market capitalism being “the hand of God” working its beneficence. So we see an absence of planetary inquiry in the business schools. The need for negative external costs to be built into every investment decision that will damage the Biosphere is not to be a part of the decision process. Maximizing the return is. There is no interest in saving the planet. Becoming more efficient in raping it yes, but not in saving it.


  2. September 30, 2016 at 2:37 pm

    Those economists are doing their job. It is just that their job is not to accurately predict the economic future but to serve as apologists for corporations and the capitalist elites.

    • Tom Welsh
      September 30, 2016 at 5:08 pm

      Exactly so.

    • originalsandwichman
      September 30, 2016 at 5:57 pm

      Hear! Hear!

  3. Tom Welsh
    September 30, 2016 at 5:03 pm

    “Unlike workers in most occupations, when large groups of economists mess up they can count on the media covering up their mistakes and insisting it was just impossible to understand what was going on”.

    The quite natural and understandable assumption behind this statement is that economists are paid to explain what is happening, predict what is going to happen, and generally advise on how to keep the economy healthy.

    Nothing could be further from the truth. As no one actually knows enough about economics to be able to do any of those things, economists are paid to justify the way things are and the unequal division of wealth in society. They are paid, in fact, by the wealthy and powerful to explain why the wealthy and powerful should be allowed to run things, and to insist that the wealthy and powerful are doing the best possible job (in this best of all possible worlds).

    Hence such strange ideas as the notorious “trickle-down” theory – of which we have heard rather less since some wags were heard to point out that it is not money that trickles down, but something quite different and much less pleasant.

  4. Tom Welsh
    September 30, 2016 at 5:07 pm

    “The Times” of London used to have a tame economist who was wheeled out on all the usual occasions. Every year, in early January, he would be given a whole page or so to lay out his predictions for the British economy in the coming year. One year, so help me God, he actually began this article by saying (in effect), “I am aware that all my predictions for the past eight or nine years have turned out to be quite wrong. However, one must be positive, so here are my predictions for the coming year”.

    Needless to say, they were wrong as well.

    When the tribal medicine man does the sacred dances, hands out the sacred potions, and makes the sacred predictions while in the sacred trance, no one is concerned if his predictions are wrong. The ways of the Gods are unknowable to mere Man, but we must still follow the sacred traditions. Otherwise things might get (still) worse.

  5. October 3, 2016 at 7:10 am

    I can only base my judgments of economists on the actions of economists. Those actions point to a community not of scholars and scientists but rather a community of professional confidence “men” paid by the rich and powerful to spin the tales and invent the tools to keep the rich and powerful in control and to head off any efforts to change the organization of the economy. Long and honorable tradition being a “gun for hire.” So I’m not criticizing economists who take on that profession publicly and openly. However, I do object to economists claiming the mantel of science and scholarship only to hide their gunslinger role in the economy. That means the profession has two choices in my view. One, drop the charade and let actual scientists and historians take on the study of the economy. Or, two, give up the hired gun role totally and forever. Now economists just have to make the choice.

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