Something bothered me about the way that Tyler Cowen framed the issue of rule by experts vs. popular rule. He refers to David Levy and Sandra Peart’s new book, which I started reading. I think I am going to be bothered by their framing, also. Let me try to articulate my issue.
Last year, I was not happy with the way my bike brakes were working, and I took the bike into the shop. An “expert” diagnosed the problem as a worn brake cable and replaced the cable. The brake worked much better with the new cable, so as far as I can tell the diagnosis and the remedy were correct.
I believe that economics is fundamentally different from bicycle brake repair. We are not experts in the same sense that my bike mechanic was an expert. Let me try to explain why that is the case.
We know what a brake is supposed to do. It is much harder to give an account of what a financial system (or example) is supposed to do.
We can describe in complete and comprehensive terms how a bicycle brake should work. We cannot do that with a financial system.
A bicycle brake was built from a design. Knowledge of how it was designed can help us to fix it. The financial system emerged. There is no design specification to which we can refer.
When brakes are not working well on a bike, there are a limited number of possible causes. When a financial system does not work well, there are more possible causes than we can list.
Theories about brakes are easily tested under controlled conditions. Theories about financial systems are not.
The brake itself does not have beliefs that affect its behavior. The participants in the financial system do have beliefs that affect the behavior of the system.
It is possible to gain some wisdom from studying economics, just as it is possible to gain some wisdom from studying history. But it is not possible to attain the sort of expertise in economics that one can attain as a physicist, plumber, or bicycle repairman. To encourage such analogies is unwise.
I am not an economist, but it seems to me that you are short-changing the intellectual insights of supply and demand microeconomics. They may seem obvious, but they are still difficult for many people and most politicians to comprehend.
From Thomas Sowell’a Knowledge and Decisions:
“To say that a farm boy knows how to milk a cow is to say that we can send him out to the barn with an empty pail and expect him to return with milk. To say that a criminologist understands crime is not to say that we can send him out with a grant or a law and expect him to return with a lower crime rate. He is more likely to return with a report on why he has not succeeded yet, and including the inevitable need for more money, a larger staff, more sweeping powers, etc. In short, the degree of authentication of knowledge may be lower in the “higher” intellectual levels and much higher in those areas which intellectuals choose to regard as “lower.” A business which produces a product that the public will not buy in sufficient quantity, or at a high enough price to cover production costs, will have its ideas validated–in this case invalidated–in a swift and painful process which must be heeded quickly before bankruptcy sets in. The results cannot be talked away. But in many intellectual areas, notably so-called “social science,” there is neither a swift nor a certain authentication process for ideas, and the only ultimate validation is whether the ideas sound plausible to enough people, or to the right people.”
Agree and I’ve been waiting for something like this giving a good summary of what defines expertise that we can really trust such as flight captain, mechanic etc versus policy “experts.” I think the easily tested part is key: if you fix my bike it works or it doesn’t afterwards. It’s a clear cut, unambiguous answer. Same thing with landing a plane. Less so say, the policies China would adapt to get a “soft landing.”
That said, part of the issue is scope. I agree that if we define expertise as: what will the effects of 12 vs 15% tax be, then we’re in trouble.
But what if we define expertise as an open economy versus going way of Venezuela. Is that not a form of “economic expertise” even if not limited to professional economists. And can we not say with fairly high certainty that we know the very rough effects of each of those actions.
I don’t think Tyler is saying that the “experts” of policy have the precision of the bike mechanic. I think he’s viewing this more along the lines of say, open market economy versus adopting the policies likely to be favored by occupy Wall Street, etc.
The financial system did not just appear though. It was designed, but was designed piecemeal to fit the conditions and needs of those currently using it. It was refined through practice and codified through informed judgments and law. It is subject to disuse and revision when it no longer fulfills our needs, and innovation to more adequately do so in the future. Beliefs can and do affect its operation which can make it self fulfilling for some time, but eventually beliefs must face reality and be confirmed, rejected, or modified. This is the difference between the forefront of science and its settlement. Beliefs exist to be tested and reality tests those beliefs everyday, we just have to be open to the possibility of their failure.
Perhaps the problem of “expertise” in the understanding of what is called a “financial system” lies, as Arnold infers, in the concept of “system.”
The “Financial System” and the “Economy” which subsumes it might be more realistically perceived (at any point in time) as a network or interwoven networks whose nodes are formed by the intersections of the objectives of individuals and groups, but are constantly moving along lines of forces stemming from the choices of means for attainment of objectives by individuals and groups that in turn affect nodal significance (function/size/ duration) in the networks and the patterns of their interweaving.
We might look at the “Financial NETWORKS” as “snapshots” at given periods and begin to learn of correlations and perhaps even causations in the movements and significances of the nodal points, some of which may disappear completely and be replaced in the network interweaving processes of the overall “Economy.” Despite some continuities, we are not likely to identify a consistent “system” of network connections and nodal significance.
The forces at work on human motivations and the circumstances in which they may be exercised in determining selections of objectives and choices of means do not seem to lend themselves to “expertise” sufficient to constructing, repairing, preserving or determining the form and degrees of changes in networks.
Let’s take Tyler’s arguably false claim about trade:
“asked to lead a council on trade policy — another technical area where the experts really know something. ”
Where is the evidence that the technical experts have been calling for adjustments to trade to reduce the pain for factory workers losing their jobs, and creating programs which reduce the pain? I find little evidence.
Yes, maybe simplistic “higher tarriffs” (Smoot-Hawley?) was very wrong in the 30s, and might well be wrong today. But maybe today is different?
How many experts, who “really know something”, nevertheless “believe in socialism”? Far too many. Because they are ALL smart enough to “rationalize” why the evidence which shows them to be wrong, “in this case” doesn’t apply to their specifics.
Socialism, and its support by so many experts, is a huge specific reason to distrust experts.
The relevant analogy here is not that economists understand the economy as well as a bicycle mechanic understands a bicycle, but that both have a much better grasp of their field of expertise than the average layman does. A team of economists might not be able to optimize growth and stability, or whatever you’d like them to optimize for, but they’ll probably do better than a team picked at random off the street. And they won’t implement really stupid crowd-pleasing policies like imposing huge tariffs, instituting rent control, or raising taxes on investment income to 50%.
How about expertise of doctor or lawyer? Great lawyers will lose cases and any doctor misdiagnose people with diseases all the time. Or what a financial advisor who misses the market? Or even CEOs miss items all the time? Carly Fiorina was a great business women but most of her big moves failed at HP and the company threw a parade when she left. And how many times do mechanics miss what is wrong? Even Ted Williams struck out or Tom Brady threw interceptions.
And in terms of economist, there were a lot of economist who:
1) Saw the housing bubble – Dean Baker anybody.
2) Paul Krugman stated there could be a Financial Crisis in March 2007.
3) Look at Krugman or Summer’s inflation prediction in 2009.
Looks at Trump trolling China. I rather they have experts helping him and Tillerson better negotiate with that nation.
So your bike has problems. You took several anonymous surveys, being careful to check the items which indicated your unhappiness as a consumer with transportation goods. In a few weeks or months or years, experts on transportation considered the survey results and wrote a number of interesting papers on the problems and psychology of bicycle owners. Many began discussing such issues with classes of college students, with fifty thousand professors reaching fifty thousand conclusions. Associations of bicycle owners are arising, and they have hired professional lobbyists to express their concerns to legislators — you receive mail almost every day urging you to join up and contribute heavily to state politicians who have an interest in bicyclists or at least who have been photographed fondling bicycles. Claims are made that some pro-bicycle legislators are secretly receiving payments from car dealers. Influential websites are displaying gifs revealing nude politicians being carnally embraced by stripped down two-wheelers. But at length the state legislature acts to pass a bill granting relief to unhappy owners of small appliances and household goods — you finally receive a certificate good for a five dollar rebate when you next buy a toaster oven.
How’s your bike doing, by the way?
Well, who are the experts? Those who live or die by the domain area or those who are “researchers”?
Here’s a recent example from Econtalk pointing out how the researchers don’t much bother with the data that is tough to get ahold of, but the employers live or die by having an intimate understanding
“What’s the difference between, say, compensation and take-home pay for a worker?
Mark Warshawsky: Well, there are many, many differences between the two. For most workers, they get a whole package of both pay and benefits when they work for an employer. They may get a pension or they may get a contribution to a 401k plan. And what’s particularly relevant here is they very frequently will get health insurance whose costs will be shared between the employer and the employee. But it’s very important to remember that for most workers, most of the cost is paid for by the employer. And as we’ll discuss, health insurance is very expensive. So this is a major cost for an employer and a major part of the compensation package. There are [?] other benefits that an employer will give to workers: certainly, vacation time and other types of leave, perhaps other types of benefits. And then, of course, added to the pay that a worker actually takes home. So, there are a lot of components to compensation, and part of the issue that is included here in this research and also in the politics of this matter is: take-home pay is pretty noticeable. And it’s pretty easy to measure. It’s in official records and tax records and earnings and so on. But the other parts of compensation, the benefits that workers get, are harder to measure and aren’t as [?] measured, and so they are sometimes not noticed as much in terms of their cost, it’s not noticed as much to the worker and it’s not noticed as much to the researchers who look at these matters. But I can assure the employer knows very much what all this costs. And it’s very much part of the employer’s consideration in terms of how to design the compensation package and what they can afford to pay given the profits in their business–what they can afford to pay in terms of, you know, [?] earnings. The employer really pays attention to these costs very carefully.”
http://www.econtalk.org/archives/2017/01/mark_warshawsky.html
If economists can’t stay up on something as simple as compensation vs wages, can we really trust them in fields that live or die by, as well as have legal obligations to maintain, opaqueness, like finance?
Nor can you always trust in the “experts” in such areas as repair. Here’s a non-professional, who looks at a problem the experts had determined needed $900 in parts. He on the other hand, finds the real problem which required $12 in parts and would not have been fixed by the “expert” solution.
https://www.youtube.com/watch?v=N_1qEjNYUm4&ab_channel=SchrodingersBox
I’d rather be ruled by neither. I suspect that this is a case of when experts overstep their authority the rest of us pay the price through populism.
We saw one downside of technocracy is that experts, a la Gruber, are the ones expert enough to fool us. Same goes for auto, if not bike, repair of course.
The non-functionality of bike brakes, from a causal-density perspective, is pretty constrained; economies not so much.
How about an analogy to medicine? We didn’t design the human body. It is a painfully complex system that emerged from evolution and some human intervention (cultural preferences for mates, for example). But we know how to fix it when it breaks under a large variety of circumstances and are getting better at it every day. That’s because we know what “health” looks like and can steer the body towards that goal when it breaks.
Is the issue with economics and financial institutions that we don’t have agreement on what health looks like in those organizations? Is it because we don’t have reliable markers of that health, like we do with a wide range of diagnostic tests in medicine? These seem to be pre-requisites to any attempt at intervention.