In 1974, economist Friedrich Hayek opened his Nobel prize acceptance speech with a plea for expert humility. After accepting his Nobel prize, Hayek immediately expressed his wish that the prize did not exist. In Hayek’s mind, the prize was dangerous because “the Nobel Prize confers on an individual an authority which in economics no man ought to possess.”
In her 2017 Nobel address, economist Esther Duflo made what could seem a similar call for humility. Duflo argued that economists should embrace their role as a “plumber” for policy-makers.
However, when one considers what Duflo said carefully, any appearance of humility falls away. The call to be willing to “tinker” with the rules of the economy and society places economists at the top, adjusting society like a chess player moving pieces around the board. A plumber of society isn’t a plummer at all. They’re more appropriately labeled “experts,” advisors, or, in years past, high priests.
It appears economists are taking Duflo’s advice.
Professors Doris Geide-Stevenson and Alvaro La Parra Perez of Weber State University recently released the results of their survey of more than 1,400 economists. The survey was given to members of the American Economic Association–the largest association of professional economists in the US—and asked questions regarding the use of different policies and the applicability of different models. The questions are especially useful, as they’re identical to those asked on past surveys of professional economists.
Using this report we can see a clear picture of the changing views of professional economists over the last three decades. There are several clear trends in the thinking of professional economists that highlight a major theme: economists trust their ability to improve the economy via government interference more than ever.
More Support Activist Fiscal Policy
One of the recurring themes of the survey is that economists are more supportive of the use of fiscal policy (government taxes and expenditures), particularly discretionary fiscal policy. Economists were given several statements on fiscal policy and were asked whether they agree or disagree. Consider some of the results.
Statement 15: A large federal budget deficit has an adverse impact on the economy.
The charts above show a huge swing (25%). Although the majority of economists still believe large deficits have adverse effects on the economy, the profession has swung from an overwhelming consensus to a more modest majority agreement.
Statement 11: The level of government spending relative to GDP in the U.S. should be reduced (disregarding expenditure for stabilization).
Economists are also less likely to be concerned about our level of spending as a percentage of all domestic spending. While this swing was not as dramatic, it continues the trend. Economists are more optimistic about the amount of spending the government can do, even relative to GDP. In fact, now a majority of economists believe there is no need to reduce spending as a percent of GDP.
Statement 18: Management of the business cycle should be left to the Federal Reserve; activist fiscal policies should be avoided.
This statement has the largest swing yet (39%). While it could be the case that a few economists have decided the Federal Reserve is no longer capable of dealing with business cycles, the second part of the statement clarifies the real question being asked.
Professional economists seem largely more confident in fiscal policies to end recessions. In 2000, most professional economists agreed activist fiscal policy should be avoided. Now, most professional economists support activist fiscal policy.
These statements aren’t the only statements which show this trend. The survey also showed economists are less worried about eliminating structural deficits than they were even 10 years ago. The change in opinion is loud and clear. Economists have faith in fiscal policy.
Faith in the Fed Increasing
So economists are more confident in government’s ability to improve prosperity by taxing and spending (fiscal policy). But what government influence on interest rates and the ability to print money? Economists call this monetary policy, and the survey asks about it as well. I think focusing on just one statement will highlight how the new “plumber” mindset of economists applies in this area as well.
Statement 21: The Federal Reserve should focus on a low rate of inflation rather than other goals such as employment, economic growth, or asset bubble.
So not only are economists more confident in the role of fiscal policy in ending crises– monetary policy is more favorably viewed than at any time in recent history.
Economists Warm to Wealth Distribution
Several statements also show an increase in favorability to welfare programs and wealth redistribution. The survey shows that economists today believe unequal wealth distribution causes more problems than economists of the past believed, and they are more likely to say the distribution of wealth should be more equal (an increase from 68% agreement to 86% agreement from 1990 to 2021).
When you pair this with the fact that time limits on welfare were considered beneficial to society by 76% of economists in 1990, a number which has fallen to 54% today, another theme emerges. Economists seem more willing to tinker with the redistribution of wealth than before.
Economists Have Less Faith in Markets
So, many economists have embraced their desire to plan society, but has their view of the economy itself changed? Well, over the last 30 years, the majority opinion of the economy has changed. In the 90s, most economists believed the competitive model best described the US economy. Now most economists believe that “imperfect competition” and “collusion” models are better descriptors.
To those readers familiar with critiques of the perfectly competitive model proposed by F.A. Hayek, please note that this change by economists is not a movement toward Hayek’s more realistic, process-based view of the economy. Instead, this change seems to rest on the belief that other static models are more applicable.
As evidence of this, while Hayek feared a focus on unrealistic models would lead to things like improper enforcement of antitrust laws, economists today do not share the same concern. The support for vigorously increasing antitrust enforcement has increased from 70% to 93% according to the survey.
Make no mistake, economists aren’t abandoning perfect competition and following Hayek. They’re realizing Hayek’s fear and saying the fact that we don’t conform to perfect competition means we need regulation.
There are numerous other trends you can see yourself by reading the survey. Economists are less convinced that tax cuts will have beneficial effects (like encouraging more work), and they’re less concerned about the fact that economic law and the majority of studies show that minimum wages increase unemployment among low-skilled workers, all else equal.
There are a few statements, fortunately, where changing opinions run against this trend. For example, economists seem less worried about free trade between people of different countries, and they’re less concerned about growing population. But overall the message is clear. Economists believe they can better manage the economy than they did in the 1990s.
My claim isn’t that Esther Duflo has single-handedly inspired a generation of economists into becoming central planners. While I don’t think Duflo’s call for economists to see themselves as in the business of policy tinkering has helped, the problem is deeper than that.
Economists, and academics generally, can easily fall into “plumber envy” (in addition to physics envy). Consider Kay Boyle’s The Astronomer’s Wife, written in 1936 (before either Hayek or Dulfo received a Nobel Prize). The story centers around the interaction between a plumber and the wife of an astronomer. In her interactions with the plumber, the wife is enthralled with the plumber’s ability to give definite answers which lead to clear improvements as opposed to the astronomers abstract answers:
“‘What in the world are we going to do?’ said the astronomer’s wife softly. There was a young and strange delight in putting questions to which true answers would be given. Everything the astronomer had ever said to her was a continuous query to which there could be no response.”
People like receiving real answers to their questions and clear solutions to problems. However, economists must be careful to not pretend we can do something that’s outside of our abilities. Economist Ludwig von Mises once said, “[a]n economist can never be a favorite of autocrats and demagogues. With them he is always the mischief-maker, and the more they are inwardly convinced that his objections are well founded, the more they hate him.”
Mises’ point was that a good economist is able to highlight how central planning will be unable to attain the desires of rulers and politicians. As such, an honest economist will always be a nuisance, forever finding the flaws in their attempts to “tinker” with the economy.
But why can’t economists offer solutions the way plumbers do? To put it simply, the economy is not a closed system of pipes. There are no definite pipes and therefore no clogs, backups, or leakages. While talk about “supply chains” and the economy “running hot” might be a useful metaphor, these phrases remain metaphorical.
The economy is an open-ended, complex system which includes the plans and desires of billions of individuals spread across time and space. There are thousands of entrepreneurs trying to respond to the desires and conditions of these individuals every year, and, though some succeed, many fail. Why should we believe someone with a degree, a blackboard, or a computer can do a better job planning people’s lives than they can themselves?
It’s time to accept that economists cannot be plumbers. Instead, we must embrace the humility required to study something as complex as the economy.
The post New Survey Shows Economists Are Warming Up to Central Planning was first published by the Foundation for Economic Education, and is republished here with permission. Please support their efforts.