Are Economists Driven by Ideology or Evidence?

Are Economists Driven by Ideology or Evidence?

iStockPhoto/The Fiscal Times

Which is more important in determining the policy positions of economists, ideology or evidence? Is economics, as some assert, little more than a means of dressing up ideological arguments in scientific clothing?

This certainly happens, especially among economists connected to politically driven think tanks – places like the Heritage Foundation come to mind. Economists who work for businesses also have a tendency to present evidence more like a lawyer advocating a particular position than a scientist trying to find out how the economy really works. But what about academic economists who are supposed to be searching for the truth no matter the political implications? Can we detect the same degree of bias in their research and policy positions?

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Once again, it is certainly possible to find examples where this has occurred. But the vast majority of academic economists appear willing to abandon ideology when the evidence is clear. Take, for example, the highly charged political issue of whether deficit spending helps to stimulate the economy in recessions. A survey of top economists from both political parties asked, “Because of the American Recovery and Reinvestment Act of 2009, the U.S. unemployment rate was lower at the end of 2010 than it would have been without the stimulus bill.”

It produced a remarkable 97 percent agreement (only one economist disagreed). When asked in a follow up question if the costs exceeded the benefits, the disagreement rose to 6 percent, but even in this case an overwhelming number agreed (75 percent) or had no opinion (19 percent). A question on the use of dynamic scoring to evaluate legislative proposals, another highly contentious political issue, was supported by 100 percent of the respondents. Similarly, support for infrastructure spending was 98 percent, no disagreement, and 2 percent uncertain.

The panel does not always agree. Take another politically charged question, “If the federal minimum wage is raised gradually to $15-per-hour by 2020, the employment rate for low-wage US workers will be substantially lower than it would be under the status quo.” In this case, 34 percent agree, 29 percent disagree, and 37 percent are uncertain. Does ideology explain the different outcome in this case?

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Probably, but there is a reason for it. The difference in agreement across questions is related to the strength of the empirical evidence. When the evidence is strong, clear, and robust, economists accept the outcome, though there is probably a bit more or less resistance depending on ideological priors. There has been some contrary evidence on the effects of government spending, but for the most part econometric studies have found that the stimulus package helped the economy. Exactly how much it helped is a matter of debate, there is a range of estimates of the “government spending multiplier,” but it’s clear that it did have an important impact.

But the evidence on the minimum wage is much less clear, especially for large increases like the question asked about. I think the evidence tilts toward small employment impacts, but it must be acknowledged that there is evidence on the other side, and that we know very little about the consequences of large increases in the minimum wage. So it shouldn’t be surprising that people fall back on their ideological priors when the evidence does not speak strongly.

I’d prefer that people say the evidence is unclear rather than choosing one set of results over the other (and the large number of “uncertain” responses to this question, the majority of responses, is encouraging in that regard). But the temptation, consciously or not, is to find reasons to dismiss evidence that is contrary to your priors. When the evidence is strong and mostly one-sided, that is much harder to do.

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Shouldn’t theory be a guide when the empirical evidence is unconvincing one way or the other? Yes, but the problem is that strong empirical evidence is needed to differentiate among competing theories. When the empirical evidence is unclear because it is weak or there are there are results supporting both sides, theoretical models can be built that are consistent with either set of results. You will then inevitably hear that theory supports one side or the other, and people are convinced by this argument, but the theory tells us very little without empirical support.

I am not claiming that academic economists are as pure as the driven snow when it comes to ideological bias. It exists. But a few prominent examples color the perception of economists more generally. The academic economists I have encountered in the more than 30 years in this profession are pursuing answers to the questions they find most important, whatever those answers might be. Ideology certainly influences which questions academic researchers believe are the most important, but there is nothing wrong with that. What’s essential is that they follow the evidence wherever it might lead. I have no doubt that, despite a few bad apples, the vast majority of economists honor the evidence over their prior beliefs when the evidence speaks clearly on an issue.

The problem is that, in economics, the evidence rarely delivers clear answers. That leads to ongoing disputes among economists, and since ideology influences the questions researchers ask, these disputes are often viewed along ideological lines.

Again, so long as, in the end, economists follow the evidence once it accumulates on one side or the other, I don’t see this as a problem. But, despite the confidence in the academic community expressed above, there have been some worrisome trends in recent years. Too many economists have been unwilling to change their views on issues such as whether quantitative easing in a deep recession will cause runaway inflation and interest rate spikes despite clear evidence those views are wrong. That must change. Our reputation with the public is bad enough as it is, and our best hope of changing that is to be honest about the evidence, and follow it wherever it might take us.