WHY YOU CAN NOT TRUST EVEN THE BEST ECONOMISTS

“When the stakes are high, politicians refer to certain conclusions of economists and other researchers. But is it correct to use scientific work as a basis for current policy? And if not, then what are economists for?” - the famous American economist Dani Rodrik philosophizes in Project Syndicate.

Economists, unlike natural scientists, rarely get an unequivocal and unquestionable result. For example, American conservatives and EU officials began to refer to the work of two Harvard University professors Carmen Reinhart and Kenneth Rogoff to justify austerity policies.

In an article published in the National Bureau of Economic Research, Reinhart and Rogoff argued that government debt in excess of 90% of GDP dramatically slows economic growth. Three economists from the University of Massachusetts did what is routine in the academic world: they analyzed the article of colleagues and criticized it.

In addition to minor errors in the tables, many questions were caused by the methodological approaches used by Reichart and Rogoff, which, in fact, cast doubt on the reliability of the findings of the entire study. Most importantly, the evidence about the danger of a threshold of 90% in the article is rather inconclusive: an inverse relationship is possible. As a rule, weak growth leads to high debt, and not vice versa.

The collapse of Rogoff's theory: saving does not help growth. Reinhart and Rogoff quite categorically rejected the charges against them, arguing that their critics, willingly or not willingly, take part in the unfolding campaign of political deception. Among other things, scientists said that they are not supporters of austerity policies, as their opponents are trying to present.

However, the problem is different: economists and the results of their research are used in public discussions. The buzz around Reinhart and Rogoff's article is not just another academic skirmish. Due to the fact that the 90% threshold became an important argument in the political struggle, economists were accused of creating a “scientific cover” for a particular political course. That is why many began to talk about the creation of a set of rules that would regulate the use of economic research by politicians.

The situation is unacceptable when economists do not foresee how their ideas can be interpreted (especially if wrong) in public debates. Perhaps Reinhart and Rogoff should have downplayed the importance of the results obtained, which would have prevented the deficit proponents from using their research incorrectly. Economists, unlike natural scientists, rarely get an unequivocal and unquestionable result. On the one hand, all economic arguments must be considered in a specific context and with a large number of possible options. At the same time, all economic recommendations should begin with “if ..., then”. Perhaps this is why advice on solving a particular problem is more like a skillful prediction than a science-based advice.

On the other hand, empirical evidence can rarely resolve a dispute between parties who have diametrically opposed points of view. This is primarily concerned with macroeconomics, where there are not so many statistics and it can be interpreted from different angles. In this regard, I recall the words of the World Bank’s chief economist Kaushik Bazu: “One thing that experts know, but ordinary people don’t, is that they know far less than ordinary people think of them.” Journalists, politicians and public opinion tend to attach great importance to what economists say. At the same time, economists, unfortunately, rarely differ by modesty, especially in public.

Another important thing that the public should know about economists is that cunning, not wisdom, helps them advance their careers in the academic world. Professors at the head of leading universities are distinguished not by the truthfulness of their views on the real world, but by the ability to create ornate, maximally twisted theories. If they are still astute observers and can reasonably argue, then there is no price at all.