Diane Coyle is Professor of Public Policy at the University of Cambridge and author of Gears and monsters: what economy is, and what it should be
Economists have an influential voice in debates about society and politics, and with that comes responsibility. The role of discipline in policy making rests on the formal and informal roles that economists play in advising governments and businesses. It gives economic ideas and research power about the kind of society we have. And with all its strengths, the economy does not meet the needs of our time.
The advisory status of the profession began in World War II, including the development of concepts and measures (such as GDP) that are still used today. The United Kingdom Government economic service was founded in 1964 and now has about 2,000 members. Other economists work in regulatory bodies, local authorities, businesses and think tanks.
Many economists think of themselves as engineers, or plumbers (as described by Nobel Prize winner Esther Duflo), or (in Keynes’ famous quote) dentists. These metaphors refer to the importance of economics as applied statistics in analyzing contexts, such as how to increase taxes effectively, or where infrastructure investment will increase productivity the most, or which university degrees provide the highest social and private return on the money spent, has. This type of analysis is powerful, can be extremely rigorous and makes an important contribution to policy debates.
However, there are two major shortcomings that need to be addressed if the economy is to remain relevant to the biggest challenges facing society today, from climate change and the collapse of biodiversity to the excessive power of big business.
One is the absence of ethics. Economists are not more or less ethical than any other profession. That many would rather think about the values and ethics of decisions apart from ‘positive’ economic analysis. The urge to be as objective as possible and to base analysis on data and strict statistical techniques is, of course, welcome. But it is a delusion to think that the value judgments involved can be delegated to others – say elected politicians – or to believe that the economic analyst can stand apart from the society they analyze.
There is an implicit moral framework underlying the economic analysis of which policy will provide the better outcome. Is one tax more efficient than the other? It depends on what the definition of ‘efficiency’ is. Yet ‘sudden economy’, the branch dealing with questions like this, is hardly taught. Just as AI has an ethical moment, so does the economy. The engineering association is inherently valuable, and economists are part of society, even if it is not. very representative of it.
The second shortcoming is that economists do not update their assumptions, benchmark models and working methods to reflect the current economy. Digital technology, for example, is common in everyday life and work, but is still largely invisible in economic statistics, even behind initiatives to include nature in economic measurements.
The idea that people are individual maximizers, with fixed preferences that are not influenced by others, has always been wrong, but this is absurdly so in an era of social media driven by advertising revenue. The criterion must change to reflect mutual interactions. This is starting to happen, with increasing interest in evolutionary economy, economic narratives and agent-based modeling, but it is not mainstream and far from textbooks. Economy must stop being look inside and collaborate with (real) engineers, climate scientists, computer scientists or ecologists for an integrated analysis of societal challenges.
Many economists will point out that good research is being done. Young researchers are flocking to areas such as environmental economics or digital markets. But new approaches are not internalized in the profession and are far from the general policy debate. In discussions of monetary policy and inflation prospects, for example, the self-fulfilling and narrative aspects rarely come to the fore, while we are all surprised daily by the news of unexpected economic bottlenecks. There is no data to analyze these events, because economists have not thought of markets as ecosystems that are prone to collapse and therefore do not have the priority of collecting the data needed to understand them.
Economy is changing and I am optimistic that the next generation will ensure that economists continue to earn their influence. But the challenges we face are tremendous and urgent, so the sooner this change takes place, the better.