TheMarketForIdeas

Economic science (economics) contributes to the design of economic policy through its analyses of supply and demand, economic growth, taxation, regulations, financial stability, etc. This discipline sometimes guides public debates on economic policy.

Currently, economics is neglected in public debates. Although many economists are leaders or employees of central banks, ministries and international financial and monetary institutions, political leaders are inclined to take into account ideology or pragmatic considerations rather than the principles of economic science. The resounding failures of some government programs, political polarization and distrust in the competence of specialists, cultivated by new sources of information, erode the influence of economists on the public debate on economic policy.

The design of a successful economic policy requires knowledge of economic theory and the results of empirical research. The crises of the post-war period have shown that a wrong economic policy creates numerous problems and social dysfunctions, with strong political repercussions. Economic science has made great progress during this period, creating a conceptual and analytical apparatus capable of finding adequate solutions to problems in various areas of social life, from poverty reduction to education and the labour market. This scientific progress can be better used to substantiate economic policy.

The influence of economic science on the public debate depends on the way economists communicate with citizens and political leaders. In order not to be marginalized, in a period when specialized knowledge is more necessary than ever, they must adapt to the requirements of communication in the current era, characterized by access to information and rapid interaction through technology.

One of the reasons why the potential contribution of economists is neglected is that economic analyses are based on assumptions and take into account restrictions. These analyses reveal that, as a rule, a choice is required between various alternatives – each with its benefits and costs – while political leaders and the population want exclusively the advantages of various options. Economic policymaking would be simpler if, for example, tax cuts and increased government spending were possible without increasing public debt, inflation control without raising interest rates, economic growth without losing jobs, and so on. In reality, such objectives often cannot be achieved simultaneously, and therefore it is necessary to establish their order of priority. This hierarchy is indispensable, although recognizing the costs of various options is politically undesirable.

Economists must adapt to the mood of society through an active and competent presence in the public debate on economic policy. In turn, authorities must take economic realities into account. And even if some economic policy decisions are ultimately determined by extra-economic factors, rulers aware of economic realities are better prepared to face the political struggle.

The reluctance of political leaders to recognize and accept economic realities is not the only reason why economic science is ignored in public debates. Another reason is offered by economists themselves, who do not get involved enough in analysing and solving real economic problems, but confine themselves to purely academic debates.

The third factor that determines the scepticism of rulers and the population towards the valences of economic science is the fact that economic theory is associated with difficulties that politicians and public opinion believe post factum could have been avoided. In Romania, for example, economists have long warned that the fiscal policy pursued by the governments of the time risks causing inflation, increasing public debt and the state’s inability to pay. However, they did not say clearly enough that, sooner or later, corrective measures will have to be taken, which, by their nature, are traumatic for society and destabilizing for the political system.

The degree of responsibility of economists for the current financial situation of the Romanian state is debatable, but the loss of confidence in economic science is real. The humorous and sarcastic expression: “theory is theory, but practice kills us!” is often used in reference to this discipline. The answer, however, is not to abandon economic theory, but to explain the fact that its principles are ignored by the authorities. This clarifying approach must be based both on economic theory and on the results of empirical analysis of economic decisions, regulations and behaviours. In the case of Romania, for example, critical analysis of the populist fiscal policies of governments over the past decade is urgently needed and should be a priority for national economic research.

Economists should not be inhibited by fear of liability or political pressures. The debate on inflation, for example, is always influenced by ideology and political interests of the moment, which makes it difficult to draw correct conclusions and design an adequate anti-inflationary policy. However, an anti-inflationary policy exists, but its design requires transparency, learning from mistakes, and impartiality in the presentation and interpretation of data.

In public discussions on serious issues such as inflation, economists must take into account the reactions of citizens. In Romania, the answers to questions about inflation asked by television reporters and comments posted on social networks show that the population is concerned about the consequences of rising prices. Economic science shows that inflation generates a series of economic, social and political costs, but specifies that some of these are produced by cognitive dissonance, created by the exaggerated importance given by the mass media to prices and wages. Insistently repeated statements such as “wages do not keep up with prices” may be accurate as averages, but they hide important differences between various social and professional categories. In Romania, the salaries of state employees have increased greatly recently, but this increase is far from being general.

Understanding the reasons for the population’s concerns does not mean ignoring the principles of economic science. Investigating the cognitive and emotional mechanisms of the masses shows that it is necessary to integrate into economic theory some nuanced knowledge regarding the behaviours of individuals in the face of adverse macroeconomic developments. Ignoring the fears of the population undermines the credibility of economists and diminishes the chances that the principles of economic science will be known and respected by the political class and society.

Recently, a revolution has taken place in economics that is likely to change the theoretical foundations of this discipline and to foreshadow important changes in the way of understanding important aspects of the economic activity of individuals and enterprises, the functioning of contemporary economies, economic policy and even social life. This revolution is produced by the assimilation into economic theory of the results obtained in psychological research.

Economic research is characterized by the use of rigorous statistical data, and economists must respect the rules of data integrity when participating in public debates. Given the increasing influence of social networks and easy access to data sources and visual means, it is possible for anyone, including economists, to misuse statistics to support their opinions. Yielding to the temptation to succeed in occasional confrontations of ideas risks eroding perennial confidence in the valences of economic science.

Carelessness in the use of data diminishes the credibility of official statistics. Highlighting a discrepancy between a public statistical series and another source of information, without taking into account methodological differences, the way in which statistical concepts are defined, the territory to which they refer, etc., creates the impression that official indicators are wrong or manipulated. In a period in which official statistical agencies are subject to strong political or budgetary pressures, this type of imprudent comparisons endangers observers’ access to quality public data.

Economists must admit that the measures they consider optimal may not appear the same in the light of the requirements of the political process. In this case, economists must propose alternative solutions that take into account the political context. Flexibility is not synonymous with giving up principles; it is about taking into account the conditions of the exercise of political power.

The principles of economic science and the results of empirical research must be presented as clearly as possible. Technical jargon can give the speaker an aura of expertise or exclude “laypeople” from the discussion, but it is not a valid communication strategy in the current conditions. To be understood and listened to, economists must express themselves clearly and avoid overly sophisticated formulations. Simplicity is a matter of accessibility of ideas, not of condescension.

Finally, economists must address the whole of society, not just political leaders. The latter are attentive to the concerns of voters and promise to solve their problems. For their part, economists must also earn the trust of their fellow citizens, but not in order to be voted for, but so that their recommendations can shape public action. This involves economists’ use of mass communication channels and media.

Economists are not appreciated by everyone, nor do they have any reason to try to be. Their task is not to capture goodwill, but to conduct rigorous economic analyses that inform economic policy. To maintain and enhance their professional prestige, they must recognize their limitations, listen carefully to the voice of the world, use available data correctly, and communicate effectively with society and the political class. Political leaders, in turn, need economic knowledge, even if they do not always take it into account. The stakes are not that everyone should learn economics, but that the scientific work of economists is relevant, accessible, and taken into account in public debate.

Nota bene

The Market for Ideas recommends, from its previous editions, the following articles dealing with the intricate relationship between economic science (– power politics) – economic policy:

Governance Unboxed (for Dummies, not for Dumbs) Economic policies are based on political power, not economic science, by Octavian-Dragomir Jora

Rebuilding Economics, by Emil Dinga

Five “Good” Reasons to Hate Economics, by Radu Vrânceanu