Clearly, banks, large companies, government instrumentalities and forecasting firms believe the employment of an economist on staff is valuable, despite the high cost of top professionals. But what value are economists to the man in the street?
According to the US Bureau of Labor Statistics “Economists study how society distributes resources, such as land, labour, raw materials, and machinery, to produce goods and services. They may conduct research, collect and analyse data, monitor economic trends, or develop forecasts. Economists research a wide variety of issues including energy costs, inflation, interest rates, exchange rates, business cycles, taxes, and employment levels, among others.” A variety of specialist economists are described: microeconomists, industrial economists or organizational economists, macroeconomists, monetary economists or financial economists, international economists, labour economists or demographic economists, public finance economists and econometricians.
They apply their efforts to government, finance, banking, business, health, education, agriculture, urban and regional economics, law, history, energy, the environment and so on. Economists obtain the data, use mathematical modelling to develop forecasts, and analyse and interpret the meaning of data. That they continue to be employed attests to their value to their employers. A brief but informative article on Economists in the Occupational Outlook Handbook, 2008-09 Edition of the US Bureau of Statistics is worth a read if you wish to go further.
Some economists perform economic analysis for the media, or make their analyses available to the media. It is about these that this piece focuses. It addresses the question of what they contribute to an understanding of economics among the general population, and concludes ‘not much’.
I’m sure every reader must have smiled wryly about, or become frustrated by the conflicting and ever changing opinions and forecasts offered by a bevy of economists regularly engaged by the media for their expert opinions, and even more so at the so-called ‘economics correspondents’ of newspapers and online outlets. While a high level of expertise in the field of economics can be expected from those occupying the professional position of economist, the same is not exhibited by some of the latter. One is left wondering whether they have had formal training in economics. Unless they fully understand what they’re writing about, it’s unlikely anyone else will. Take David Uren’s post on The Australian Current Account Blog yesterday: Did the cash hit make a difference? and see if you can work out what the piece is driving at. Uren usually writes well, but this piece left one wondering whether his point was that the consumption curve did not show the blip the disposable income curve did. Judging from the comments that followed, bringing in the Friedman versus Keynes hypotheses served only to muddy the waters. Economics is hard enough without enveloping it in fog.
What about the scramble among media commentators to predict the next interest rate movement, the next unemployment rate or the next GDP figure? The commentators play a game to see who hits the bullseye, or gets closest, no doubt to get a high five at the drinking hole that night. Some will be right, some wrong, but what does it matter? What difference does it make whether their predictions are right or wrong? What decisions are made based on their predictions? Maybe some players in the stock market might gamble on their predictions, but what a gamble it is. To take interest rates as an example, for the man in the street, predictions are useless; only the actual movement counts. So why on earth do they bother making predictions? Is it just a media game with which they go along for a fee? Waiting for the actual figure seems eminently more sensible than scaring people that the rate may rise, or disappointing them when the predicted fall does not occur. But rest assured this silly game will go on, on TV, radio, online and in the papers because it's media fodder.
The recent GDP figures were a subject of great debate with most estimates varying from around 0.2 to 0.4%, until some further data emerged that had economists running to their spreadsheets to insert the new data and come up with a new GDP figure, then revised down to maybe even negative, reviving the talk of ‘technical recession’. Then, to everyone’s astonishment, it came out at 0.6%, and so the rush was on to explain how that figure came about. The next day Tim Colebatch in The Age in The GDP numbers don't add up was disputing the ABS’s sums and confidently predicting the figure would be markedly revised down in the next quarter’s figures, maybe even to negative. He’s been quoted by others but no one I have read has confirmed his analysis. Maybe he’s right, but if he’s not, he’s created concern among those who want to see a steadily improving economy.
My point is that economists seem to have such wildly varying opinions about the same data set that the public is left wondering who’s right, and how the economists can vary so grossly in their explanations and predictions.
One of my longstanding gripes has been about the influence on economics writers of their preferred economic model. Ergas’ reference in the Current Account Blog to his beloved Friedman in response to the upbeat GDP that just about everyone else attributed to the stimulus packages, is a case in point. I wrote about this in on TPS in The problem with economists back in February. Referring to the contemporary debate about when and how the stimulus should be withdrawn now that the economy seems to be recovering, Crikey’s Bernard Keane said on Thursday “There are no - no - economists or business groups who think it is time for the stimulus to be wound back, except for those on the far right or Liberal shills such as Henry Ergas, who opposed the stimulus package in the first place.”
Another grumble is the way journalists allow their political leanings to influence what ought to be an objective analysis of the undeniable facts. Michael Stutchbury of The Australian is an example. Quoting again from Bernard Keane in Wednesday's Crikey: “After the March quarter figures, anti-Labor commentators like Michael Stutchbury tried to argue that the modest growth was a consequence of exports only, ignoring the fact that the stimulus packages had prevented domestic demand from collapsing the same way it had in the US, the UK and other developed economies. Today’s figures blow the Stutchbury argument clean out of the water, with exports a trivial contributor to the overall growth figure – although like the Coalition, Stutchbury has now switched to urging that the stimulus has been too successful and needs to be wound back.”
With commentators of the likes of Ergas and Stutchbury, what can us readers who lack a profound knowledge of economics, really believe? As Keane put it in a piece on Crikey, Nothing more stimulating than press gallery groupthink: “The ‘debate’ over whether the Government should pull back on the stimulus package is a classic case of a press gallery trying to frame a real-world issue into a narrow, political framework that suits its own reporting purposes. It is a collective illusion being foisted on the mainstream media’s ever-smaller audiences by journalists and commentators unable or unwilling to see outside the gallery prism of winners and losers and political personalities.”
What is it that convinces economics correspondents that their view of the world is one that politicians ought to take seriously; what persuades them that they know better than the elected government with its Treasury staffed with experts in many fields and accomplished economists, well-resourced departments that can provide it with information, modelling and advice? For a lone journalist to confidently direct trenchant criticism at the government over economic policy and assertively give gratuitous advice to it about how to proceed, seems the height of impertinence. Yet they do it every day, presuming the Government is too simple to understand the situation and is waiting breathlessly for their advice. Today Peter Hartcher, a good journalist, in what is a well-written piece in the SMH, PM's next challenge: holding the reins of a soaring economy, referring to Kevin Rudd's original conversation with Ken Henry about the looming GFC on board a plane, says: "Now is the moment for Rudd to get Ken Henry back onto the plane. Rudd needs to ask him the same question, but for the other side of the cycle: now that Australia is recovering solidly, what is the plan for the best-case scenario?" I’m glad Hartcher mentioned that; otherwise Rudd might never have thought of it. He goes on: “Paradoxically, the implications of a strong recovery will be even scarier for Rudd than the threat of a recession. And the work of responding wisely will be infinitely harder. Why? Because the Government's pre-emptive strike against recession was a vast bomb-drop of taxpayers' money. It worked. Now the right response to an unexpectedly strong recovery is to withdraw planned spending, to go about the landscape taking money back from voters.” More gratuitous advice.
Why do good journalists write in this condescending way? Is it really to bring Rudd and the Government up to speed? Surely not. Is it to impress readers with the writer’s insight, erudition and wisdom? More likely. The problem is that so often the journalists get it wrong, and have to backtrack hoping nobody notices. They would do their professional image less damage if they argued the pros and cons of each issue and each option, quoting a variety of opinions from diverse reliable sources, and then if they feel persuaded by one argument over another, to draw a reasoned conclusion. This would go down much better with thinking readers than the adamant, resolute opinion and advice they so often offer. Two example of what I mean are Mike Steketee’s sensible piece in today’s Weekend Australian: All things still being unequal, and Shaun Carney’s sound article Shock Tactics in today’s Age.
The thrust of this piece is threefold:
First, those who make predictions on TV, radio and in the press about interest rates, unemployment figures, the quarterly GDP, or any other periodic economic data sets, would be best engaged doing something more useful. If we never heard another prediction, many of which are wrong, but just waited patiently for the actual figures, we would all be better off.
Next, we would all benefit immeasurably if those who are paid to write/speak for the media on economic matters were to stick to the facts, present them accurately in full and unembellished, and if interpretation is called for, put aside the bias of preferred economic models, and their political leanings, and call it the way an experienced unbiased economist would. For journalists writing for some of our papers this would be a tall order. But why should we be burdened by lack of expertise, conceptual bias and political distortion? The subject matter is too important for each of us and for our economy for anything less than exemplary comment.
Finally, we would all benefit from well-reasoned articles based on the widest variety of facts and opinions, rather than the dogmatic, assertive self-opinionated offerings, so often lacking real substance, with which we are too often assailed.
What do you think?