Downturn Exposes Decline of Economic Expertise

In the room, the economists come and go, saying, essentially, "I don't know."

One of the not inconsiderable side effects of the current economic meltdown is the demise of the economic expert, if experts they truly ever were. Experts took a quieter bath in 1989, when communism collapsed without a single Sovietologist coming near to suggesting the possibility of the demise of the totalitarian behemoth. So, too, did few economists call the global economic collapse that began last autumn. The entire Dismal Science, as Thomas Carlyle called economics, and all its practitioners seem to have been asleep at the wheel.

This might be a touch more forgivable if economists, as a profession, didn't specialize in displaying such relentlessly high confidence. I first picked up on this many years ago when watching John Kenneth Galbraith and Milton Friedman in debate. Here were two men who could not be brought to agree on the weather, but the one trait they shared was supreme confidence, each in his own absolute correctness. I have never met an economist whose demeanor suggested he harbored the least bit of doubt. Larry Summers, President Obama's chief economic adviser, is a case very much in point. Bullish on himself, bullish (in a different sense) in manner, Summers has gained a reputation for not suffering fools gladly, no matter how many times, in making incorrect predictions, he has been foolish himself. When economists appear on television, they ought, like baseball players in the batter's box, to have their averages (how many times they have been right, how many wrong in their prognostications) shown in a crawl beneath their confident faces. Summers, near as I can make out, seems to have a career average of around .238.

Robert E. Lucas Jr., a University of Chicago macroeconomist and a Nobel Prize winner, in his January 2003 keynote address to the American Association of Economists, announced that economic depression was no longer a problem that modern economists had to be concerned with. "The central problem of depression-prevention has been solved, for all practical purposes," Lucas said, "and has in fact been solved for many decades." With something that begins more and more scarily to look like precisely such a depression, Lucas—give the man credit for honesty—more recently admitted that he didn't know what the solutions to our current-day problems are.

After being wrong so often during the current crisis, an unseemly humility is beginning to show up in economists. On television, Liz Ann Sonders, the chief investment strategist for Charles Schwab, recently said, "Look, I would love to know where we go from here, but no one does." Warren Buffett, the great economic guru of the Prairie, whose Berkshire Hathaway company has lost more than 30 percent of its value, suddenly seems a lot less godlike. Ben Bernanke, the head of the Federal Reserve, comes on as anything but super-confident in the grand old economistic style.

Yet can we simple folk bear the absence of authority that once issued so unrestrainedly from our army of economic experts? What will life be like without their setting out for us, with what we now understand to have been bluff precision, the financial lay of the land?

We have had other experts, Lord knows, and have had to shed them, and done so without dire consequences. Think of the long reign of false expertise that Freudian psychoanalysis enjoyed—some 75 years, nearly as long as that of Soviet communism—holding vast segments of the American middle class in its dopey grip. Think of all the diet advice, all the exercise programs, all the child-rearing books, all produced by ostensible experts, so much of it subsequently refuted, exposed as nonsense, if not outright pernicious.

Now it is the economists' turn. Let them return to constructing models, describing causes (without any longer pretending that they know the full effects of these causes), seeking out lessons in economic history, confining their speculations to such specialized areas as labor, education and the environment. But their old authority has been badly depleted. They, too, have now been decisively melted down.

"I like Milton Friedman, George Stigler and the other economists here at the University of Chicago," my friend Edward Shils, himself a penetrating student of social science and the limits of its possibilities, once said to me. "They are obviously men of high IQ, very smart, well-informed, but I fear, Joseph, that they are insufficiently impressed by the mysteries of life."

Ah, yes, the mysteries of life—the passions, the envy, the greed, the mischievous second hand undoing the supposedly careful work of the invisible hand of the market, the unpredictable everywhere scrambling those best-laid plans. All this has been playing out, leaving chaos in its wake, while the gods of fate and destiny bend over the table, sly smiles on their faces, utterly heedless of the pathetic predictions of the once haughty economists, until now so happy in their work—leaving the rest of us to fight through the current crisis as best we are able without benefit of their deeply flawed advice.