Economists have lost their power. Here’s how to fix it

12 September 2024

Economic advice is increasingly contested: the profession is at a lower ebb in esteem in policymaking and broader circles.

Partly this reflects fair questions about our blind spots, and partly a preference to avoid some of the inconvenient truths that economic frameworks can deliver.

At least some of the criticisms levelled at economists are well justified: most failed to foresee the global financial crisis; many missed the rise of China; our multilateral organisations blindly rolled out the same policy prescriptions from capital account liberalisation, slashing government spending and privatisation for a range of countries with little regard to their context or history.

For a long time, many economists have been wilfully blind to questions of distribution – arguing “it’s not our job” to consider economic inequality, let alone exploring the feedback loops between inequality, mobility and growth.

And in Australia, many hold economists responsible for the policy failures in human services markets – such as vocational education and training, employment services and the National Disability Insurance Scheme – where the gates were thrown open to private providers without enough thought to market design and regulatory oversight, leading to bad outcomes for vulnerable consumers and a padded bill for taxpayers.

My second observation is that this “sharing of the spotlight” represents an appropriate evolution, given that major policy challenges have evolved.

The most pressing policy problems today – including economic policy ones – are often more complex than in previous decades.

“Wicked problems” such as climate change, housing affordability and closing the gap in outcomes for First Nations Australians are front and centre – as they should be.

And these, and many other important policy challenges, cut across other policy realms.

A powerful antidote to ‘magical thinking’

But the third reason for rejecting economics in policymaking is less justified and should concern us.

Economists can be a pain in the arse: our focus on trade-offs, demand for evidence on costs and benefits, and penchant for pointing to the potential for unintended consequences, can be tiresome for those who would prefer less scrutiny or more decisions on the “vibes”.

It’s always tempting to convince yourself that the easy thing to do is also the correct thing.

Economics remains a powerful antidote to “magical thinking” that can often prevail in policy world. We should be wary of those who would like to silence it because they would prefer less scrutiny.

There are still important areas where economists must step up if we are to remain relevant in a complex policymaking environment.

Some economists are in their happy place when weighing in on policy debates from a point of high theory.

But while theory will always be important, theory alone is less likely to provide the right answer to some of the complex issues that policymakers grapple with today.

• To provide advice on fraught issues such as water allocation in the Murray–Darling Basin, we have to understand complex systems and their interactions and feedback loops.
• When advising on Indigenous policy, we have to grapple with the importance of culture and the scars of history.
• To make recommendations on school education, we need to consider how policy will jump from departmental edict to the behaviours of thousands of teachers on the ground.
• To input into climate policy, we often must grapple with “second-best” (or third- or fourth-best) policy levers, recognising that “first best” may simply not be politically feasible.

And in all areas, we must have an eye to the less sexy but always important question of implementation. The cleverest policy idea will only be the best one if it can actually be put into practice.

I’ve always thought that policy advice done well is a somewhat chaotic (but tasty) buffet of theory, history, deep sectoral understanding and empirical analysis, served with a generous side of humility.

The best buffet cooks approach problems with strong frameworks but a voracious appetite for information and an openness to be “surprised” by what they find.

Communication matters

The capacity of economists to influence policymakers and public debates will depend on the clarity with which we express our ideas.

I’m going to lapse dangerously into generalisation here and say we haven’t always been as good at this as we could be.

Of course, economists are not the only public servants that slip into “bureaucratese” – a kind of passive word soup – to avoid committing to a point, nor the only academics that hide behind complex language and technical jargon.

But I think economists have a particular obligation to speak directly and plainly.

If we stake our claim to our unique contribution to public policy being the clarity of our thinking, that clarity must be evident in the advice we provide.

Further, given the importance and complexity of the issues that we provide advice on, the stakes for communication are high.

This is something I have thought a lot about since becoming chair of the Productivity Commission, an organisation well-known for high-quality policy research packaged in very long reports.

The length of the products in part reflects the very broad terms of reference we receive from government and the huge amount of research that sits behind our policy recommendations.

However, we are working to ensure that we write our reports as clearly and economically as possible. For us, this has meant investing in serious editing capacity, skilling our staff and making it a priority in our work.

To butcher Mark Twain, it takes longer to write a short report than a long one, and so we are committing to spend the time to make sure that our reports are as direct and easy to follow as possible.