National Affairs , No. 27, Spring 2016.
Consider two problems concerning the relationship between economic experts and the general public in a democracy. First, there is the Tullock Problem, which is that the economists may not be disinterested, and their biases may be difficult to uncover. Second, there is what I call the Shaman Problem, which is that the economist who pretends to knowledge that he does not have may be at an advantage in gaining the attention of those in power.
In a way, the Shaman Problem is a subset of the Tullock Problem, but I think it deserves separate consideration. As we will see, Peart and Levy's remedies for the Tullock Problem strike me as unlikely to solve the Shaman Problem.
Escape from Democracy might seem to be a timely book, given recent concerns. The growth of the administrative state, meaning de facto legislation by unelected technocrats, has been noted in a number of recent books, as well as a symposium in the spring 2016 issue of National Affairs.1 The election of Donald Trump as President has also caused economists to worry about a decline in their expert status, as Justin Wolfers has reported.2
However, Peart and Levy have not written a book that caters to current events or fashions. Instead, it offers an offbeat stroll through various episodes of economic and intellectual history, ranging from the Mississippi Bubble to the debate over the significance of Kenneth Arrow's Impossibility Theorem.
My favorite of the book's side trips is its recounting of the way that economics textbooks in the decades following World War II dealt with economic prospects in the Soviet Union. They quote from page 20 of the 1948 edition of Paul Samuelson's Economics.
"The Russians, having no unemployment before the war, were already on their production-possibility curve."
This is laugh-out-loud funny, given what we now know about the rampant corruption and inefficiency of the Soviet economy.
Moving ahead to the 1961 edition of Samuelson's text, Levy and Peart write about Samuelson's prediction that the Soviet economy will overtake that of the United States.
"The optimistic forecast of time before the Soviet overtaking is twenty-three years; the more pessimistic time to overtaking... is thirty-six years."
In between those two dates (1984 and 1997), the Soviet Union collapsed.
Peart and Levy argue that only relatively recently have economists claimed the mantle of expertise. Instead, the classical economists saw themselves as participants in discussions of public policy. Moreover, they saw value in discussion for its own sake.
[John Stuart] Mill recognized the problem of faction; discussion may not break down the barriers of factionalized or party interests. Although discussion may not successfully penetrate and alter the minds of those whose views have been hardened by faction, it will, nonetheless be useful to the 'calmer and more disinterested bystander,' one who has yet to become factionalized.
With the modern welfare economics of Arrow and Paul Samuelson that emerged after 1940, economists claimed to have separated themselves from factions and thus the need to bother themselves with ordinary politics. Politics would set the goals of public policy, and economists would suggest the optimal way to achieve those goals. Levy and Peart write,
As economists posited exogenous goals, the role of the expert economist shifted from participant in democratic deliberations to that of economic engineer.
This separation of goal-setting from practical policy was questioned by a few important critics of Arrow's work.
For decades after Arrow first published his formulation (James M.) Buchanan protested against Arrow's assumption that nothing is learned in the democratic process. Buchanan challenged Arrow's assumptions of fixed desires... The key problem, to which (Amartya) Sen draws our attention, is that Arrow's formulation assumes there is no learning in the course of discussion. The group's goals are exogenously determined.
But the Tullock Problem also interferes with this neat separation between political goals and economic expertise. For example, if factionalism played no role in economic analysis, then economists' opinions on the wisdom of deficit spending would not depend on which political party is in power. Instead, you will find that economists who support Republicans become much more muted on the deficit issue when their party is in power than when Democrats are in power, and conversely for Democratic economists.
Peart and Levy suggest that disclosure by economists could help to alleviate the Tullock problem. They argue that this disclosure should include not just the compensation that economists receive from interested clients but also their ideological predilections.
Perhaps the most interesting idea that they offer is to have regulatory decisions made by citizen juries rather than by experts.
Instead of appointing regulatory bodies with their experts making decisions, where the only people with a voice in the matter have a particular interest in the issues, we propose that decisions be made by people, randomly selected, who have the issues explained to them by contending experts.
They point out that the judicial process helps to deal with the biases of experts by having those experts questioned by other experts.
For more on these topics, see "Pigs Don't Fly: The Economic Way of Thinking About Politics", by Russ Roberts, Library of Economics and Liberty, December 3, 2007; and "Happiness, Progress, and the Vanity of the Philosopher", by Sandra J. Peart and David M. Levy, Library of Economics and Liberty, June 6, 2005. See also Why Were American Econ Textbooks so Pro-Soviet? by Bryan Caplan, EconLog, December 29, 2009.
As I indicated at the outset, I am more concerned with the Shaman problem. Given a choice between an economist who claims to have a low-cost solution to a problem and an economist who says that no such solution exists, the political process will choose the economist who promises a cure. My guess is that a jury is at least as likely to make this mistake as would a Congressman or Cabinet official.
In 2009, there were economic Shamans who said that they knew how to expand health insurance coverage while bringing down health insurance costs. There were Shamans who said that without an $800 billion economic stimulus the unemployment rate might reach 8 percent. In 2017, we have another new administration, which listens to different Shamans.
In medicine, Shamans always offered cures for every ailment. Only recently has real medicine reached the point where it can indeed help address many illnesses. In economics, the list of solvable problems and proven remedies is still quite short.