Which side is arrogant? (Thoughts on framing and debate)

Via Bernard Hickey on Rates Blog I see the following:

All you need to do is deregulate, privatise and target stable inflation and everything will work.

Broadly, they still believe that. I listen every day to this group think in Wellington. Treasury, the Reserve Bank and the cabinet have not changed that mindset.

The Global Financial Crisis has exposed that as both arrogant and wrong. New Zealand can kid itself that our relative economic stability and apparent prosperity (relative to everyone else) is the exception that proved rule.

Let’s put to the side that this is not what policy makers in New Zealand have done – we have had active competition policy, and we do have significant income transfers to support parts of society.

I have a more fundamental qualm with this – the idea that it is arrogant to presuppose that the knowledge of policy makers is limited and that intervention should be based on a clear idea of “what is wrong” … rather than presupposing that non-policy makers are idiots.

To me, I find the other way of looking at it arrogant – and yes, this does imply that I think that Stiglitz’s views on the ability to micromanage the economy are in themselves a touch arrogant.

Let us think about this a bit more.  What is more “arrogant” – forcing people who want to trade with each other not to because we are concerned about it, or not doing so?  What is more arrogant, accepting that our knowledge is limited and trying to work with society to ensure that as a society we can protect ourselves from unexpected things (the mainstream way of viewing things), or assuming that our knowledge of what is going on in a broad economy is great and trying to micomanage industries, credit markets, and the transactions people are allowed to choose.

In all honesty, I am sick to death of the mystical presumption that “free markets” have done horrible things to us and we need to do something about it.  Government as a share of national expenditure is larger than it used to be.  Transfers through the tax and benefit system are larger than they were 20 years ago.  Competition law and regulation is a lot clearer and much more active than it used to be.

Rant over – now to make an actual point!

Now do not get me wrong – in reality I actually don’t think Stiglitz, or Hickey (who wrote the above comment), are being arrogant.  I was trying to illustrate a point, I mean no offence 🙂

My point here was that how we frame this question makes the different sides look incredibly different!  I don’t think it is fair to call any side arrogant, in truth we just have different beliefs regarding the ability and knowledge of technocrats to guide the economy.  Stiglitz and Hickey both place more faith in the hands of policy makers to make choices for individuals that are better than the choices that individuals would make – either because of direct mistakes by individuals, or factors that stem from the interrelationship of individuals.

The economic model allows us to clearly paint the picture of these issues – and debate our value judgments.  Just like Rodrik says in this awesome piece.

So how about we stop treating the “other side” as ideological idiots, and actually ask “why” our views are different and whether the assumptions involved are appropriate or inappropriate.  I am afriad that I often see Bernard Hickey giving the Treasury and RBNZ people too little credit for their views in these pieces – the solutions are not as simple as a single newspaper article, or academic paper, will suggest!  Furthermore, there are always trade-offs – unlike politicians someone with integrity (such as an economist) will look at costs of choices as well as benefits.  And yes, that final statement was an example of stunning arrogance by me – but I’m not going back on it 😉

17 replies
  1. Bill Patterson
    Bill Patterson says:

    “Stiglitz and Hickey both place more faith in the hands of policy makers
    to make choices for individuals that are better than the choices that
    individuals would make”

    Isn’t this the framing problem? They’re not pro-government because of their trust in policy makers, they’re willing to accept the inefficiencies of government for the trade offs they prefer.

    • Matt Nolan
      Matt Nolan says:

      There are likely two issues here – one of efficiency and one of distribution. If we are careful we can separate the issues nicely enough.

      I have focused on the part where Hickey (quoting Stiglitz) was stating that markets were not necessarily optimal, self-correcting, yada yada yada. As a result, I’ve focused on the efficiency area – which is where we need an assumption around our belief in the knowledge of policy makers, and policy makers knowledge of the economy. My views undeniably differ here, and I find the type of organisational knowledge that they – and even more moderate economists – assume incredible … but this is an issue we can discuss transparently without calling people arrogant.

      On the distribution side there are a lot of arguments, all based on moral beliefs regarding trade-offs, and that is cool. Again, no need to attack policy makers on that – but plenty of need to transparently and openly raise the issues.

      I was just trying to show with the post that, if we want to rant, we can frame the issue as someone being a dork pretty easily – and it is easy to do it to either side! However, it isn’t really fair, instead I’d like to just make all the assumptions sort of more transparent for people to chew on.

      • Bill Patterson
        Bill Patterson says:

        Yes, that sounds good to me. For a lot of people considering these issues as non-experts, the brinksmanship is completely irritating, especially when everyone ends up citing arguments from [highly respected economist] and it just becomes morals-by-proxy. However, arrogance in the context of institutional power is common throughout arguments from all sides of economic opinion on the GFC, from what I’ve observed. So maybe Hickey’s just conflating his anger.

        • Matt Nolan
          Matt Nolan says:

          I think argument by authority, or general appeals to authority, are overused when discussing macro issues due the limits to knowledge and the importance of the questions – something I don’t view as entirely appropriate.

          The way we communicate ideas, journalists communicate ideas, and economists communicate ideas is pretty interesting stuff – wish I had the language and tools to properly understand it 😉

    • Paul Walker
      Paul Walker says:

      To me part of the problem is that in the case of Hickey he really doesn’t understand the details of what the argument is about. He is not an economist and I wonder if he could really explain, for example, Grossman-Stiglitz “On the Impossibility of Informationally Efficient Markets” and Hayek 1945 and explain why the former is not answer to the latter. As to Stiglitz, I don’t get it. He should be able to do the above but from what I’ve read of him he doesn’t seem to get the point of Hayek. I wonder if he really does think that when you are as smart as he undoubtedly is you can micromanage an economy. May be this is Stiglitz’s real arrogance.

      • Matt Nolan
        Matt Nolan says:

        Regarding Stiglitz that is a very interesting question Paul, one I’ve definitely spent a bunch of time thinking about.

        From what he writes to economists I do not think that is the case – instead I think it is a matter of how he “markets” the ideas and the type of “rhetoric” he thinks is appropriate to help explain the conclusions he has come to. IMO there must be a better way to have this dialogue in public – one which doesn’t involve misleading debates about peripheral assumptions, or misrepresentation of other peoples views.

        The comment you made on your Friedman quote post is quite apt in this sense.

        We shall see I guess, we shall see.

        • jamesz
          jamesz says:

          Can you separate the ‘rhetoric’ from what he thinks? Is the framing not a part of the idea? Are you taking on McCloskey head on here, or am I just misinterpreting you?

          • Matt Nolan
            Matt Nolan says:

            I don’t see a contradiction – because I am talking about him using two types of language to share ideas.

            He uses economics, when talking to economists, to frame ideas and trade-offs in such a way we find reasonable for a discussion – and where the assumptions are clear. In that context we all have a discussion and its lovely.

            He then uses a whole different form of rhetoric when selling his policy conclusions to the public – one I believe is misleading regarding the underlying assumptions he has made, but is undeniably more persuasive for an audience that hasn’t had the training in viewing economic arguments in this light. Given it is an argument on the same underlying principles, it is an issue of sales – and I find the attacks on other economists who have equally valid (and often more heavily empirically supported) views tiresome in this context.

            In this context, it is easy to separate the rhetoric he uses for non-economists and what he thinks – as we have a clear observation of him using the economic method, and economist-economist rhetoric to define what and why he thinks something.

  2. Paul Walker
    Paul Walker says:

    The Rodrik piece is interesting but not for the reason many may see it as interesting. Take this bit

    “Too often, people who work with mainstream economic tools lack the ambition to ask broad questions and the imagination to go outside the box they are used to working in. But that is true of all “normal science.” Truly great economists use neoclassical methods for leverage, to reach new heights of understanding, not to dumb down our understanding. Economists such as George Akerlof, Paul Krugman, and Joe Stiglitz are some of the names that come to mind who exemplify this tradition.”

    To me the problem with the likes of Akerlof and Stiglitz is that they don’t think much outside the mainstream of economics. Their world is, not surprisingly, (complete/comprehensive) contract theory and they don’t go much outside that. To go back to the example I use before I get the feeling that Stiglitz, at least, thinks the contract theory captures the important parts of the Hayekian approach to information. But I would think that the Austrians would say otherwise. Its the Austrian who are thinking outside the mainstream.

    • Matt Nolan
      Matt Nolan says:

      What I agree with in the Rodrik piece is the way he looks at the method of “doing economics” as a great toolbox for looking at issues.

      Where I disagree is probably two-fold: 1) his priors when he comes to look at a question (he seems more like to come to a question believing in failure), 2) with the way he does his Bayesian updating when it comes to combining tendencies from models (he seems to allow his set of models to shift his priors in a more forceful fashion than I would). Combine those, and you have a direct reason for why we have differing views on the effectiveness of policy, given the same methods and data!

  3. jamesz
    jamesz says:

    Can I also add that I think you’re being hugely unfair to politicians here. I think they address a lot of the same problems as economists but with far more constraints on their actions. Most economists are not bound by any political constraints, nor are they accountable to anyone for the views they express. The ‘lack of integrity’ that you accuse politicians of is not a consequence of their character but the system they operate within. That is the price they pay for having the opportunity to effect change.

    • Matt Nolan
      Matt Nolan says:

      My ideal of a politician would degree. But many politicians are far more reactive, and interested in showing intent rather than actually trying to match the social wil.

      Something I will say. NZ politicians are closer to my ideal than many places, often they are interested in maximising surplus, but they are constrained by the sometime ill informed ideology of their constituents.

      But even then, constantly there are arguments which go “here is a benefit, oww you are saying there is a cost, that is because you eat children and are paid by the other side”. These arguments have been constant recently, and my patience for politicians talking that sort of crap has worn thin 😉

    • Paul Walker
      Paul Walker says:

      I think the thing about politicians is that while they do address the same problems as economists their incentives are very different. They want votes and they will do whatever they think will get them votes, no matter how bad it may be for the economy. The problem that an economist sees as economic the politician sees as political and sets out to provide a political answer and bad politics always wins over good economics.

      • jamesz
        jamesz says:

        I don’t think I’d be so cynical about politicians while being so optimistic about economists’ motivations! I’m not as pessimistic as Rodrik but I think there’s some truth to it:

        “It is cleverness, not wisdom, that advances academic economists’
        careers. Professors at the top universities distinguish themselves today
        not by being right about the real world, but by devising imaginative
        theoretical twists or developing novel evidence. If these skills also
        render them perceptive observers of real societies and provide them with
        sound judgment, it is hardly by design.”

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