Partway through a panel discussion at a recent economics conference in San Francisco, Jason Furman, a former adviser to President Barack Obama, turned to Kimberly Clausing, a former member of the Biden administration and the author of a book extolling the virtues of free trade.
“Everyone in this room agrees with your book,” Mr. Furman said. “No one outside of this room agrees with your book.”
The academics and policy wonks gathered in the hotel conference room laughed, but the comment captured something real: After decades of helping to shape policy on weighty matters like taxes and health insurance, economists find that their influence is at a low ebb.
Free trade is perhaps the closest thing to a universally held value among economists, yet Americans just voted to return to office a president, Donald J. Trump, who has described tariffs as “the most beautiful word in the dictionary” and who often seems to view trade through a mercantilist lens that the field has considered outdated since the days of Adam Smith.
The president he will replace, Joseph R. Biden, was hardly a free-trade zealot himself: He kept in place many of the tariffs that Mr. Trump imposed in his first term, and moved in his final days in office to block the takeover of U.S. Steel by a Japanese company — a decision his own economic advisers opposed.
It isn’t just trade.
Economists overwhelmingly favor immigration as a source of innovation and growth, yet Mr. Trump wants to seal the border and deport potentially millions of unauthorized residents.
Economists across the ideological spectrum have espoused a carbon tax as the most effective tool for combating climate change, yet Democrats rejected that approach when designing their climate bill under Mr. Biden.
And economists have warned for years about the nation’s unsustainable fiscal path, saying it could result in ballooning debt payments, rising interest rates and increased risk of a financial crisis, yet both parties have run up huge deficits with no credible plan for reining them in.
All of which meant that when economists gathered in San Francisco this month for the annual meeting of the American Economic Association, there was a sense that their famous confidence — critics would say arrogance — had been, if not shattered, certainly dealt a body blow. What was the point of their careful data-gathering, their complex models, their intricate theories if no one was going to listen to their advice anyway?
“I do wonder all the time if it matters,” said Aaron Sojourner, a progressive economist who worked in the White House under Mr. Obama and, briefly, Mr. Trump.
Mr. Sojourner hastened to add that, yes, he does still believe that his work matters. There are opportunities to influence policy at the state and local levels. There are research projects that will take years, if not decades, to yield policy recommendations that can be put into action.
But in formal sessions and impromptu hallway encounters, conversations at the conference kept bumping into the same set of questions: Why had so many political leaders — and so much of the public — rejected so many of the field’s central tenets? What could economists do to win their influence back?
“I don’t have an answer to that,” said Jesse Rothstein, a professor of public policy and economics at the University of California, Berkeley, who served in the Obama administration. “That’s the wandering-in-the-wilderness part.”
Trial and … Error?
To its critics, the explanation for the field’s wilderness moment is simple: Economists’ policies have been tried, and they haven’t worked.
Speaking to a roomful of economists at the conference, Oren Cass, a conservative policy expert — but not an academically trained economist — ticked through a list of the profession’s perceived failures:
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The loss of manufacturing jobs and the deindustrialization of the American Midwest, which Mr. Cass and others attribute largely to free trade.
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The 2008 financial crisis and the ensuing recession, for which some partly blamed the financial deregulation championed by many economists.
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The long-term slowdown in economic growth despite repeated tax cuts that many economists argued would have the opposite effect.
“I think people rightly look at what the economists are recommending and say, ‘Why on earth should we expect that to be true?’” he said. “If what you have been doing is not working, you cannot retain credibility and expect good outcomes simply by continuing to do it.”
Many economists, unsurprisingly, reject much of Mr. Cass’s analysis. They argue, for example, that the decline of manufacturing was at least as much a result of technological change and global forces as American trade policy, and that tariffs will wind up only hurting the people they are intended to help.
And in any case, they argue, Mr. Cass presents an outdated caricature of who economists are and what they believe. Perhaps in the 1980s and ’90s, economists overwhelmingly favored an agenda of lower taxes, reduced regulation and unfettered globalization, but in recent decades the field has evolved to take a more nuanced and varied view of these subjects.
“Before there was more of a sense of ‘all economists say X,’ and now I don’t think you can necessarily say that,” said Ioana Marinescu, a University of Pennsylvania professor who until recently was an economist on antitrust issues at the Justice Department.
That shift is partly a result of what economists often refer to as the “credibility revolution” — the embrace of a more data-driven, experiment-based approach to research that attempts to make the dismal science into more of a true science. That work has often uncovered ways in which the real world is more complicated than an earlier generation of models suggested.
Ms. Marinescu has studied ways in which employers exert power in the labor market, which helps explain why, for example, raising the minimum wage doesn’t seem to cost as many jobs as economists once expected.
“Theory is very crisp, and it’s easy to forget you’re relying on assumptions,” she said. “Data is messy. Things often don’t turn out the way you thought.”
Yet the credibility revolution has hardly succeeded in bolstering economists’ credibility, either with politicians or with the general public.
That may be in part because of some high-profile forecasting errors: Economists broadly failed to predict the 2008 financial crisis, then failed to predict the surge in inflation as the country emerged from the coronavirus pandemic, and then wrongly predicted a recession as policymakers worked to bring inflation under control.
Economists say it isn’t fair to judge the field as a whole on such failures. Macroeconomic forecasts matter to policymakers at the Federal Reserve and to investors on Wall Street, but they aren’t a major focus for most academic economists — and they aren’t something that even most forecasters claim to be particularly good at.
“We’ve always been bad at forecasting,” said Greg Mankiw, a Harvard economist who was a top adviser to President George W. Bush. “Does that hurt our credibility? Probably.”
‘Skunks at the Garden Party’
Not that economists are used to being popular. Mr. Mankiw quipped that “being frustrated is sort of the natural state of affairs for being an economist.” Karen Dynan, who worked in the Treasury Department under Mr. Obama, said economists there were known as “skunks at the garden party” — always showing up to explain why some attractive-sounding program wouldn’t work as intended.
Still, Ms. Dynan said, “they wanted us around.” Politicians may not have liked the advice economists gave, and they certainly didn’t always follow it. But they did want to know what the economists thought.
Ms. Clausing, the trade economist, recalled a time early in her career when she took a year off from graduate school to serve as a junior economist in the Clinton administration.
“Economists were listened to in a way that really did make the outcomes better,” she said. “You could see specific examples where dumb ideas that would have hurt the very people they were aiming to help were stopped because they listened to experts.”
More than two decades later, Ms. Clausing served in what was, on paper, a much more senior role in the Biden administration, as deputy assistant secretary in the Treasury Department. Yet she said she often felt that she and other economists were sidelined by an administration that didn’t seem to value their expertise.
“It felt like the Biden administration didn’t put policies through the same process that Obama or Clinton would have,” she said. “It just seemed like the Biden folks didn’t care as much about that.”
Other economists who worked in the Biden administration, including Ms. Marinescu, say they do feel that their work was valued. And Mr. Biden appointed economists to top roles in his administration, including naming Janet L. Yellen — a widely respected former chair of the Federal Reserve — to be his Treasury secretary.
Mr. Trump, in his first term, had few economists in top roles, and perhaps the most prominent exception — Peter Navarro, a Harvard-trained economist who was an adviser on trade policy — held skeptical views on trade, particularly with China, that put him far outside the economic mainstream. (In a 2016 survey of academic economists, not a single respondent said putting tariffs on China to encourage domestic production would be a good idea.)
Economists who held more mainstream views had limited influence. Richard Burkhauser, a Cornell University professor who served on Mr. Trump’s Council of Economic Advisers, said he and his colleagues quickly understood that there was little point in trying to talk Mr. Trump out of imposing tariffs.
“The most forlorn economists at the C.E.A. specialized in trade,” he said. If they had tried to fight tariffs, he said, “that would have been the last meeting we were at.”
Instead, Mr. Burkhauser said, economists focused on a different question: If the administration was going to impose tariffs, how could it do them in the least painful way possible?
A Failure to Communicate
But how can economists get back to a place of helping to set policy, not just to minimize the harms done by policies they consider misguided?
“I don’t think the most productive thing is to just whine about how you’re not being listened to,” Mr. Furman said. “Economists need to do a better job about understanding the problems people care about, about being innovative in developing approaches to them and about being clear about uncertainty.”
Some in the field see the problem mostly as one of communication — they need to do a better job of explaining, both to policymakers and the public, why their arguments make sense.
Researchers have long understood, for example, that globalization can have costs, in lost jobs or reduced wages in some industries. Most economists argue that the benefits — cheaper goods and a more productive, dynamic economy — outweigh those costs, and that even many of the people who are initially harmed will be better off in the long run. But they have often talked about those trade-offs in a way that could seem dismissive and insensitive, said Glenn Hubbard, a chairman of the Council of Economic Advisers under Mr. Bush.
“Our own language got in the way,” Mr. Hubbard said. “When we talk about ‘transition costs,’ what an awful piece of language to describe people and places.”
But other economists argue that the profession needs a period of more significant self-reflection. Ms. Dynan, the former Treasury official, said economists must grapple with their failures concerning the 2008 financial crisis and the recent period of high inflation.
“It matters that the profession has failed society in a couple of ways,” Ms. Dynan said. “I think it’s important that when policy goes awry, people own up to what happened.”
That process may already be underway. Several sessions at the conference in San Francisco addressed economists’ struggles to predict and respond to inflation, including a panel in which prominent economists including Ben S. Bernanke, the former Fed chair, debated the role that government policy played in the recent inflation surge.
“We’re all sitting up here trying to diagnose what went wrong,” said Christina Romer, a professor at the University of California, Berkeley, who was chairwoman of the Council of Economic Advisers early in the Obama administration. “I do feel that, as a profession, our understanding of inflation is not nearly where it needs to be.”
Some other economists, though, see a different — if perhaps more painful — path back to relevance. If Mr. Trump pursues the policies he has promised, they argue, the U.S. economy will experience faster inflation and slower growth. That could force politicians in both parties to reconsider their view of economists’ advice.
“It’s quite possible that after that people will say maybe economists have something to contribute after all,” Ms. Clausing said. “Maybe we’ll start to learn the right lessons from the Trump administration rather than the wrong one from the Biden administration.”
Content Source: www.nytimes.com