How Wonks Became Oracles
A while back, I suggested that one reason economists get more respect than sociologists is that they have a better command of statistics and other technical skills. But I think there’s also another reason the public is obsessed with economists. It’s because economists, like the shamans and oracles of yore, offer people the hope of understanding the mysterious titanic forces that shape our lives. I’m talking, of course, about Macro.
When I say “Macro,” with a capital “M,” I mean all of the powerful and unpredictable economic forces that buffet the economy. Macro includes macroeconomics -- the booms and busts of gross domestic product, unemployment and inflation. It also includes macro finance -- the big swings in stock and bond prices, the sudden rise of commodities or real estate as popular asset classes.
Like the ancient Greek gods, Macro rules our lives with capricious cruelty. Did you graduate in a recession? Your career probably will be scarred for many years. Were you counting on selling your stocks or your house to begin your comfy retirement in 2009? Oops -- have fun working for another five years! No matter how much of your life you control, Macro will always have its say.
And so, just as the ancient Greeks went to oracles to tell them the will of Zeus and Apollo, modern-day workers and savers are desperate for the arcane knowledge of the Macro Sages. And who else but economists play that role?
Recently, economist and blogger Justin Wolfers documented economists’ rise to prominence. Here is his graph of how often various types of social scientists have been mentioned in the New York Times:
As you can see, there was a huge rise in the 1970s and early 1980s, and a spike in the late 2000s. Those are obviously driven by the big events of Macro -- the oil-price shocks and inflation of the '70s and '80s, and the Great Recession more recently. People were looking for Macro Sages in times of turbulence.
Everywhere I go, when people find out that I have a doctorate in economics, they ask me how the economy is going to perform. Will the euro-zone crumble? Will there be runaway inflation? Is the Greek election result good or bad? They also ask me about asset classes. Are stocks a good buy right now? Don’t interest rates have nowhere to go but up?
I don’t have answers for them. The best economic models can only forecast the economy about as well as educated guesswork. And the price movements of asset classes are unpredictable by their very nature. The world’s best macroeconomists have only the tiniest bit more insight into the future whims of Macro than the Oracle at Delphi had into the mind of Apollo.
But hope springs eternal. People will never accept that economists can’t predict the Macro future. That’s why the more volatile the economy, the more people clutch at the arms of economists. In Argentina, where inflation, recession and defaults are endemic, economists are bona fide celebrities, dating movie stars and soaking up adulation from armies of Twitter followers.
The tragedy of this, for the economics profession, is that it gets the incentives all wrong. Economists can predict lots of real, useful things -- bus ridership, auction bidding, consumer demand for products. There are a lot of economists doing very careful work to determine optimal tax policy, or the best education methods for poor countries.
But almost no one seems to care. What people want is for economists to be their Macro Sages. And with an incentive like that, economists would have to be irrational not to respond. So there are plenty of macroeconomists who are much, much more convinced than they should be that their models are capturing the real dynamics of Macro. And there are many, many economists who make very confident statements about Macro in blogs, in newspaper editorials, at business dinners.
Oh, the business dinners.
So if the Macro Sages aren’t making predictions based on models that work, where do they get their oracular pronouncements? Invariably, from politics. It is basically impossible for economists to pontificate about things Macro without letting their political leanings creep in. After all, what else do they have to go on?
And this, of course, gets economists a bad reputation in some circles. The ancient Greeks may or may not have trusted their oracles, but modern people can smell nonsense if there’s enough of it around. Bob Hall, one of the greatest macroeconomists in the business, and too intellectually honest a man to be drawn into the Macro forecasting game, said a couple years back that "the average American thinks of economists as masters of an alien religion, with teachings no more relevant than Buddhism."
That’s because when the average American thinks of “economists,” she probably doesn’t think of a humble engineer, toiling away developing new theories of industrial organization or devising new statistical tools to predict the effect of an environmental policy. She thinks of a pontificating, loud-talking big-shot telling her what GDP is going to be next year. And being wrong, of course, most of the time.
And yet the desire for Macro Sages will never die. There will always be a market for people willing to make us feel less afraid of the ineffable. Maybe someday we will build a model that really does tell us how the macroeconomy works. Until that day, we will sit with eyes wide and watch the shaman cast the bones.
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