“If you laid all the economists in the world end to end, they still wouldn’t reach a conclusion.” This old joke still works because it reflects a common belief that economists can’t agree on anything important. Yet the four of us are part of a project that we believe will demonstrate that this proposition is wrong.
Each week since late September, along with 37 other economists at top universities, we have been answering questions on major public policy issues. These include the predictability of the stock market, the best design for health insurance and the effect of China’s managed exchange rate. You can find our answers (and sign up to be notified of future poll results) here.
Why are we taking the time to do this? Although we can’t speak for the other distinguished panelists, the four of us are tired of seeing our profession’s views misrepresented in policy discussions.
We think there are two main reasons for the distortions. The first is the conventions of journalism itself: Although there are notable exceptions, most journalists have limited training in economics, and those who edit the articles often have even less. Hence, out of an understandable but misguided sense of fair play, there is a bias toward wanting to show both sides of an issue. When, for example, an economist tells a journalist the equivalent of 1+1=2, the writer, in an effort to provide “balance,” will often include a quote from someone who says that 1+1=3.
Second, editorial boards don’t want wishy-washy, hedged opinions. As a result, op-ed pages are more likely to publish someone advocating an unequivocal position than someone who offers a more nuanced argument. This favors fringe views. A position that sounds new, yet is completely untested, is all the more enticing to editors, so long as it appears to challenge mainstream views.
We don’t claim that there is research-based consensus among economists on all important policy questions. But even when there is broad agreement (say, 1+1=2), the news media rarely makes it clear that such a consensus exists.
To overcome this problem, we rely on a phenomenon that is often called the “wisdom of crowds” effect. It is based on the observation that the collective judgment of a diverse group of people about a question is almost always better than the answer of any single person from the group. (Think of the accuracy of the “Ask the Audience” lifeline in the game show “Who Wants to Be a Millionaire.”)
The four of us exemplify the breadth and diversity of the panel. Our expertise covers micro- and macroeconomics; we received our doctorates over the course of two decades and have each been at our four respective institutions for more than 20 years; we have edited major journals and held positions in the major professional society for economists; some of us have served as advisers in Democratic and Republican administrations, others have spent their entire careers in academia.
Together, the entire panel could make up the best economics department in the world. On virtually every major topic, there is a member of our panel who is among the world’s acknowledged experts.
A look at the polling results shows that the four of us generally agreed on issues ranging from exchange-rate manipulation by China, to tax reform in the U.S., to environmental policy, to monetary policy. In addition, the panel as a whole typically agreed on most of the issues. The responses each week can be sorted according to the answer, the author’s affiliation or the degree of confidence in the answer.
To give a sense of the potential value of our discussions, the attached charts show the panel’s responses to a pair of questions about stock prices. Every day, there is a parade of people on television touting stocks and offering predictions on whether they will rise or fall. The first bar chart shows that almost every member of our panel agrees or strongly agrees with the proposition that predicting daily movements in stock prices is impossible.
The panelists can also choose to include a short description of the basis for their answers. Readers will find references to a variety of scholarly articles explaining why economists are skeptical of stock pickers. The poll thus provides an introduction to the half-century of fact-based research that informs the scholars’ opinions.
This agreement doesn’t imply that the panelists are slaves to any particular ideology. The same experts disagreed as to whether the level of stock prices in the late 1990s for dot-com-type companies could be well-explained by appropriately discounted projections of future dividends.
That the panel arrived at these two apparently inconsistent answers is easy to explain. Stock picking is fraught with error. That doesn’t mean that every price will be justified. Rather, predicting when difficult-to-explain prices will adjust is virtually impossible on a consistent basis.
The recent behavior of housing prices is a case in point: Profiting from early warnings in 2003 or 2004 about a housing-price bubble would have required very deep pockets and a great deal of self-confidence.
Our hope is that the panel will improve public discussion about economic-policy issues in three ways. First, for those topics where the evidence is settled, let’s stop pretending otherwise. There is no reason that every article that deals with economics has to present two points of view.
Evidence Over Ideology
Second, the archive of panel answers may help identify authors and topics for opinion pieces that are driven by evidence rather than ideology. Op-eds, even those by reputable analysts, often convey a false sense that research on a particular issue is more settled than is the case. A skeptical journalist or reader can use the panel’s answers to see where there is consensus and where there isn’t.
Third, election season is often a time when many bizarre economic proposals are floated. The panel will try to identify these cases and provide commentary about why they are mistaken. We chose to study economics because we believed that it can contribute to improving living standards for everyone.
This remains true even in today’s complex and globalized economy. However, we have also learned that the results of good economic research are sometimes difficult to convey and often easy to distort. By harnessing the wisdom of crowds, we hope to distill the best economic knowledge and present it in a clear and succinct format.
(Claudia Goldin is professor of economics at Harvard University, William Nordhaus is professor of economics at Yale University and Richard Schmalensee is professor of economics and management at the MIT Sloan School of Management. Anil Kashyap is professor of economics at the University of Chicago Booth School of Business and a contributor to Business Class. The opinions expressed are their own.)