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Friday, November 07, 2008

"Communicating Economics"

This discussion from the Royal Economic Society newsletter is about "the role of economists in the media":

Communicating economics, RES Newsletter: ...[Romesh Vaitilingam]: You once said that one important role for economists is to inch forward public understanding. I wonder if you see a positive trend, say over the last ten years, in terms of the sophistication of public debate about serious policy questions.

[Evan Davis]: Yes I do – and inching forward is the right pace to describe it. I think it’s become accepted that economists probably have something sensible to say about transport policy, health policy, environmental policy. And in all these areas, you see economics talking – and rather more loudly here than in some other countries. This is the country with a congestion charge, which is an economist’s solution to the problem of urban congestion as opposed to madcap schemes based on number plates.

I think instinctively the British have come to respect microeconomics in a way that some other countries don’t – and that’s why we have a more economics-driven trade agenda, a better approach to transport policy and have taken a somewhat robust line on lots of other issues. And in macroeconomic policy, we have one of the most eminent economists in the country running the Bank of England.

RV: What about the role of economics in the particularly difficult economic circumstances we currently face?

ED: I think this episode is slightly embarrassing for economists, net. It’s not great for the profession that we’ve talked about trying to end the cycle of booms and busts and congratulated ourselves on the improved framework for policy, and yet we’ve allowed ourselves to have a nineteenth century-style bank run and a house price crash. Even if we’re not in the forecasting business, we ought to have been in the business of saying the current situation is unsustainable and various scenarios could play out badly.

In fairness, economists were pretty good at saying that there are global imbalances and the housing market might fall. And I don’t think you would necessarily expect economists to predict the particular nature of the crisis – that it would come out of sub-prime and lead to an overall credit crunch.

But the question we all have to ask ourselves – particularly those of us who’ve been in communication – is did we do enough to warn people that there could be a very bumpy patch? I’ve asked myself this a lot and I think the answer is we did try to tell people but we didn’t try hard enough. In particular, we failed to tell people that when times turn bad, lots of things can get bad simultaneously. One of the reasons we didn’t do enough is that there’s a mood pervading both the economics profession and the public at large that is only receptive to a particular message at a particular time and essentially blanks out anything that’s not consistent with that message. Only when the narrative changes, when this sort of the economic earthquake occurs, are we receptive to all the other news.

RV: Can economists provide the tools to get us out of these difficulties?

ED: I’m not sure it’s going to be economic answers as much as trying to foolproof the human systems that run these economic systems. There’s a very good TV programme called Air Crash Investigation, which analyses what went wrong in various plane disasters. In a surprisingly large number of cases, there’s a small human failing in a very sophisticated system. For example, one crash happened because the covers had been left on altitude indicators after some routine cleaning.

Now obviously the airplane engineers could say to themselves we need more sophisticated ways of making our planes failsafe. But equally, we need to ask what is the weakest link in these very sophisticated systems. If the cleaner can do something that is mission critical for the survival of the plane, you’d better think more about the human processes as well as the engineering issues. I think there are economic analogies here. For me, one of the most interesting things to come out of recent economic events is the degree to which you need to look at human factors as well as economic ones, and not always assume that there’s an economic model of rationality that underpins human behaviour. It might be that we’re evolving towards rationality, but in the meantime, we could allow ourselves a slightly faster pace of evolution if we study the human factors. ...

    Posted by on Friday, November 7, 2008 at 07:56 PM in Economics, Press | Permalink  TrackBack (0)  Comments (7)

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