Do economists matter?

How to trust economics. This was the subject of one of the discussions at Davos last week, where very important-sounding people assembled to opine on the state of the global economy.

Broadly, this discussion considered the prevailing economic system itself, which, in the wake of successive global shocks, has attracted growing criticism for failing to prescribe the least harmful interventions.

Reflecting on how the European Central Bank (ECB) got it wrong in the wake of the recent inflation spiral, its president, Christine Lagarde, explained her wariness of economic models — which failed to predict the true effect of geopolitical shocks.

On the one hand, the central bank could be criticised for failing to see the signs that inflation would stick around in the wake of these shocks and that it ought to have hiked interest rates far sooner. Another view is that the ECB should have ridden the wave, holding out instead of inflicting so much pain. 

The option that the ECB chose instead was to hike rates rapidly to a multi-year high after having fallen behind the curve. 

Legarde’s criticism eventually turned to economists themselves, describing them as “a tribal clique”. Despite her work being steeped in that world, Lagarde isn’t an economist by training, but a lawyer.

“They quote each other … But they don’t go beyond that world, because they feel comfortable in that world. And maybe models have something to do with it,” Lagarde added.

“And what I think we should move towards — and what I am trying to convince my colleagues that they have to — is bring in people that are not members of the tribe.” 

Last week, South Africans got a taste of the kind of influence economists hold, despite them being part of this often fallible tribe. I’m of course referring to the Thabi Leoka scandal, which garnered considerable attention last week, even from people who probably don’t spend much time thinking about the political lives of economists.

At the heart of the fascination with Leoka’s qualification is the belief that what economists do really does matter. To some extent that is true. 

After all, they are so often given some of the most important-sounding jobs such as taming inflation or, in the case of Leoka, advising a head of state on how to rehabilitate a laggard economy. By virtue of their qualifications, they are often entrusted with helping formulate policies that affect all of us — even if the effect on their lives is somewhat less acute.

But, as Lagarde suggests, there are huge limits to economists’ actual powers. Despite what some may believe, theirs isn’t the most trustworthy of sciences.

Kate Raworth delves into another aspect of the economist problem in her celebrated book Doughnut Economics. In it, Raworth notes that economists carry an air of authority. “They take front-row seats as experts in the international policy arena — from the World Bank to the World Trade Organisation — and are rarely far from the ear of power.”

Later Raworth notes that the problem with the influence economists hold is that they are being taught an economic mindset rooted in the distant past.

“Given the fast-changing nature of the 21st century, this is shaping up to be a disaster,” Raworth writes.

“Of course the 20th century gave rise to groundbreaking new economic thinking, most influentially in the battle of ideas between Keynes and Hayek. But though those iconic thinkers held opposing perspectives, they inherited flawed assumptions and common blind spots that lay unexamined at the root of their differences. The 21st-century context demands that we make those assumptions explicit and those blind spots visible so that we can, once again, rethink economics.”

What Lagarde and Raworth signal is that there is something preventing economists from doing the sort of self-reflexivity needed to solve today’s problems. 

One big part of this is that the economic theory taught at universities is so encumbered by a bygone way of seeing the world. Another is a sort of pact not to admit to professional fallibility. 

And many economists work and speak for certain institutions such as large financial corporations, which benefit from beating back new ways of thinking about the economy.

As an economics writer, I am often engrossed in the work of decoding economists’ agendas to give a balanced lay of the land. This is crucial for me, who (armed with only a literature degree) can easily crumble when dealing with people with far more extensive libraries than my own.

What I have learned in the process is that, yes, economists matter very much — especially now, when we need all hands on deck. But what we should never do is let their limits define where our collective efforts to build a more just world begin and end.