Economic Experts Often Forget Economics

An expert is someone who has had special training or experience with particular problems. We assume that such people have a much better understanding of that field of activity than others do. They are used as sources of knowledge and advice because of their accomplishments, and they are usually held in high regard. They don’t, however, know everything about everything. Too often people considered experts become self-important, overestimating their own knowledge and capabilities.

A lot of highly trained physicians, experts in one or more fields in medicine, give opinions about what is wrong with healthcare in the United States and the world. Because they are intimately involved in the industry, they feel that their expertise gives them everything they need know to cure the ills of the system as a whole, but the biggest problems in healthcare have nothing to do with doctors, hospitals, medicine, or medical technology. Rather they involve economic principles and the politics that distort incentives. If a physician or medical researcher is to understand healthcare, as opposed to medicine, he or she would do well to become familiar with economic principles and delve, with open eyes, into the politics that have heavily infiltrated the profession and the industry for many decades. They should take off the medical expert hat, because it won’t help much. Fixing healthcare will require recognizing real economics and limiting political manipulation, with all of its related negative consequences, whether unintended or intentional.

To understand the way things work overall in any society, any economy, any industry, or any market, it is not necessary or even very helpful to have intricate knowledge about or experiences with the details of particular processes, materials, or skills. Much more important is understanding economic laws, how they produce outcomes, that incentives affect decisions, and that political interference distorts those incentives, usually negatively and often in unexpected ways.

As ironic is it may seem, many professional economists who are experts with their mathematical models have become so enamored with their own cleverness that they have forgotten that economic principles actually still hold in spite of their brilliance. I understand that it is intellectually satisfying to represent reality in a model, and models do have their place in testing hypotheses, but economists cannot predict the future any better than anyone else.

The models are necessarily based on inherent assumptions that are inserted by the model builders, assumptions that are guesses about how things work or about what the future holds.

Central planners and those who advise them, economic and otherwise, disregard economic reality, and the consequences are often disastrous. Professional economists have not prevented and have not even predicted severe economic turbulence, such as recessions/depressions. Their actions in response often make things worse. The bigger the system under investigation, the less local, the more complex it is, or the more the system itself changes in response to imposed conditions, the more humble the expert should be, including all economists and all politicians. The less personal responsibility experts take for the outcomes, the less people should trust in their opinions.

Economics, as a field of inquiry, has tremendously valuable insights, but the arrogance of economists in pretending to do things that they cannot do not only has rightly eroded the confidence of people in the profession, but has also damaged the very idea that economic principles are valid reflections of reality, which is quite unfortunate. The job of economists in past times was to tell politicians why their manipulations won’t work and actually hurt people they say they are helping. It is time for economists to step back from their present role as political cheerleaders and regain their status by holding politicians’ feet to the fire of reality.

Dan McLaughlin is the author of “Compassion and Truth-Why Good Intentions Don’t Equal Good Results.” Follow him at daniel-mclaughlin.com