Economics has a democratic deficit. The notion that it is too complicated for normal people to understand has precluded conversations about how economic policy should work, and who it should serve. A drift towards micro rather than macroeconomic theories has shrouded the discipline in technical expertise, electing mathematic equations over difficult questions about common goods. Yet economists don’t have all the answers. Citizens can often be the best placed to speak truth to bad policy.
In his 2010 film Inside Job, the film director Charles Ferguson traces how many academic economists who advocated for deregulation and played powerful roles in shaping government policy failed to spot the impending financial crisis in 2008. Take Columbia economics professor Frederik Mishkin’s study of Iceland, for example.
The Icelandic Chamber of Commerce paid Mishkin to write a report examining how Iceland’s financial deregulation had fared. He pronounced the country’s financial institutions “excellent” and concluded it was financially stable. Just two years later, Iceland’s banking system sunk the country into billions of pounds of debt. If economists are paid large sums to consult for banks and advise governments but remain sealed off from citizens and civil society, they risk espousing policies that are deaf to impending crises and blind to the effects those may have on society.
Luigi Zingales, Professor of Finance at Chicago University, calls this danger “economists capture”, where conflicts of interest make economists beholden to the businesses that pay them to consult. As an economist, he says, it pays to be pro-business. Opportunities to do highly-paid consulting work are not equally distributed, and economists who cater to business interests “clearly have a larger set of opportunities”.
Fannie Mae and Freddie Mac, the two mortgage lenders that helped spark the USA’s financial crisis and were later fined for accounting fraud, commissioned many economists to write reports analysing their businesses in the early 2000s. Some went as far as to argue that the probability the companies lending practices could cause a shock in America’s financial system stood below one in three million. This isn’t just bad economics; it’s a delegation of ethical responsibility.
If these economists had spoken with citizens about their mortgages, would they have reached the same conclusions? Including views from the ground-up can help design better economic policy, and may help prevent catastrophe.
There are two ways to do this. First, citizens could play a broader role in crafting regulations. Including citizen representatives on regulatory boards would give them a say when economic systems aren’t working. While regulators often consult small business and consumer representatives, this could go further. Including citizens more holistically when drafting and evaluating regulations could openup a field that risks becoming skewed towards particular interests.
Most importantly, citizens should be economists too. One doesn’t need to know the empirics of collateralized debt obligations to understand that repackaging various low grade debts into a triple–rated challice is both deceptive and dangerous. Demystifying economics and teaching languages to express how the economy affects lives will empower people to call out bad policy and confront the fallacy that economists necessarily have the best answers. While they may tell us the discipline is too complicated for us to understand, an economy that listens to citizens is one worth fighting for.
Hettie O'Brien writes about political economies. She studied Philosophy and recently completed an MPhil at the University of Cambridge.
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This seems to me to be loooking through the wrong end of the telescope. The economy is as JS Mill said (I think) the 'Political' economy - so it is not the weather or the tides it is a human construct. The economy works how we decide we want it to work! It doesn't need investigating, it needs reforming...
For the average citizen to become familiar with concepts in our social system of macroeconomics is a difficult and time-consuming process. As an engineer who badly and separately wanted to understand about how our social system works, I spent many days in libraries trying to learn from past texts that were intended for undergraduate students, about this subject. The result6s were very unsatisfactory due to a lack of logic and failure for proper definition of what is being examined and discussed.
So I decided to try to explain it myself! After about 20 years of part-time research I found some very much improved ways for providing this kind of an investigation. I was able to express its findings in the form of a 310 page book, too. The book has been published as "Consequential Macroeconomics--Rationalizing About How our Social System Works".
It is significant that I found this subject to be capable of proper definition and subsequent explanation in a logical way that converts it from what was a "dismal" pseudo-science into a real specific one. There have been many past calls from students and experts in social science for a more scientific approach in the expression and improvement of macroeconomics. However, I found that none of the experts in what was an humanities side, within the centers for higher learning were able to write such a text! I regard this as a strange situation, for our subject has been stagnant for a long time and needs some new life injected into it. Looking at it as an engineer might, I found the way to solve this problem.
I sincerely believe and claim that I have discovered how to arrange ones ideas so that we can better understand how our social system of macroeconomics actually works. This enables us to see of what it comprises and how external influences to the system can affect it and cause it to respond. My analysis also provides a tool for exploring the way a policy change can influence the progress of the national economic community. This is unbiased--my work does not need to enter into political choices, as to what change is needed.
Because I believe that scientific knowledge should be shared and also that the proposals in this blog for wider spreading of knowledge in macroeconomics are sound, I wish to offer my book for free to anybody who is concerned and interested in discovering about of what our social system consists and how it works. Please write to me at chesterdh@hotmail.com and tell me of your interest and I will send you an e-copy.
I concur with this analysis and agree that non economists and "real people" should be involved in economic decisions and policy making. Alongside this we also need some relationship between economics as studied and the real world. For reasons I fail to understand, economists seem to think that the earth is flat and infinite. They appear to ignore/not accept the fact that the earth is finite and hence economic growth cannot continue on a full planet. Maybe all economists should be required to study physics/limits to growth and to understand that economic growth has only occurred as a result of increasing energy (fossil fuel) use over the last two centuries. Climate change and the climate chaos we are heading towards very rapidly is a logical consequence of the present approach to economics. Given the very real possibility of dramatically reduced human populations this century, from the expected impacts of climate change, perhaps economics is due for a major revamp?
I like these comments and my proposed method of broardening our knowledge is presented below.