Noah Millmann and Jim Manzi over at The American Scene (and Karl Smith at Modeled Behavior) have been debating the degree of deference we should give to economic science when considering what governments should do about a recession. Manzi emphasizes the large degree of uncertainty and difficulty attendant on any attempt to determine whether a particular policy actually works, and he is right about this: we do not know very well whether any policy intervention actually works (or worked), given the enormous number of potentially confounding variables. Lots of econometric ink is spilled trying to figure out this problem, but the problem is intrinsically hard, given the information available. By contrast, knowledge in physics or chemistry is far more certain, since it can be established by means of randomized experiments that are easily replicated. So, Manzi argues, we should give less deference to economists than we do to physicists when making decisions. Millmann sensibly points out that the relevant analogy is not to physics or chemistry but to something like medicine. The knowledge produced by medical science is hard to apply in practice, and doctors base their treatment decisions on a combination of customary practice, experience, and some limited experimental and observational evidence. In particular cases, then, medical practice offers at best an informed guess about the causes of a disease and the best course of action. But Millmann argues that this does not undermine the epistemic authority of medicine: in case of sickness, we should attend to the advice of doctors, and not to the advice of nonexperts.
I think Manzi’s argument would be more compelling if it were put as a robustness or resilience argument (discussed previously here and here). Consider first the case of medicine. If we get sick, we have three basic options for what to do: heed the advice of doctors, heed the advice of non-experts, and do nothing. It seems clear that heeding the advice of non-experts should (normally) be inferior to heeding the advice of doctors. But is heeding the advice of doctors always epistemically preferable to doing nothing? (Or, more realistically, to discounting the advice of doctors based on one’s own experience and information about one’s body). The answer to this question depends on our estimation of the potential costs of medical error vs doing nothing. Because medical knowledge is hard, doctors may sometimes come up (by mistake) with treatments that are actively harmful; in the 18th century, for example, people used “bleeding” as a treatment for various diseases, which may have been appropriate for some things (apparently bleeding with leeches is used effectively for some problems), but probably served to weaken most sick people further. At any rate, we may not know whether a treatment works or not any better than the doctor; all we know is that people treated by doctors sometimes die. If our estimate of medical knowledge is sufficiently low (e.g., if we think that in some area of medical practice medical knowledge is severely limited), our estimate of the potential costs of medical error sufficiently high (we could die), and our experience of what happens when we do nothing sufficiently typical (most illness goes away on its own, after all: the human immune system is a fabulously powerful thing, perfected to a high degree by millions of years of evolution!) it may well be the case that we are better off discounting medical advice for the sake of doing nothing. Of course, atypical circumstances may result in us dying from lack of treatment; that is one of the perversities to which this sort of argument may give rise. But given our epistemic limitations (and the epistemic limitations of medicine), there may be circumstances where “doing something” is equivalent to doing something randomly (because the limitations on our medical knowledge are so severe), and so we may be (prospectively) better off doing nothing (i.e., tolerating some bad outcomes that we hope are temporary, since our bodies have proven to be resilient in the past).
Consider now the case of a government that is trying to decide on what to do with respect to a moderately severe recession. Here the government can do nothing (or rather, rely on common sense, tradition, custom and the like: i.e., do what non-experts would do), heed the advice of professional economists (who disagree about the optimal policy), or heed the advice of some selected non-economists (or the advice of some mixture of economists and non-economists). When is “heeding the advice of economists” better than “doing nothing,” given our epistemic limitations? And when is “heeding the advice of non-economists” better than “heeding the advice of economists”?
We know that the current architecture of the economic system produces recessions with some frequency, some of which seem amenable to treatment via monetary policy (whenever certain interest rates are not too close to zero), some of which appear to be less so (these are atypical), but in general produces long-run outcomes that seem tolerable (not fair, or right, or just: merely tolerable) for the majority of people (there are possible distributional concerns that I am ignoring: maybe the outcomes are not tolerable for some people). The system is robust for some threshold of outcomes and some unknown range of circumstances: it tends to be associated with increasing wealth over the long run, though it is also associated with certain bad outcomes, and we do not know if it is indefinitely sustainable into the future (due to environmental and other concerns). We also know that there is some disagreement among economists about what is the optimal policy in an atypical recession (which suggests that there are limits to their knowledge, if nothing else). If we think that the limits on economic knowledge are especially severe for some area of policy (e.g., what to do in atypical recessions), historical evidence suggests that sometimes economists may prescribe measures that are associated with intolerable outcomes (e.g., massive unemployment, hyperinflation, etc.), and we think that most recessions eventually go away on their own, we may be justified in doing nothing on epistemic grounds. In other words, if we think that for some area of policy economists’ guesses about optimal policy are not likely to be better than random, and carry a significant risk of producing intolerable outcomes, then conservatism about economic policy is justified (doing what custom, tradition, etc. recommend, and heavily discounting the advice of economists).
But these are big ifs. Suppose that the epistemic limitations of economic science are such that most policy interventions recommended by professional economists have a net effect of zero in the long run; that is, economists recommend things more or less randomly, some good, and some bad, but in general tend not to recommend things that are very bad for an economy (or very good for it). (Historical evidence may support this; “Gononomics” is something of an achievement, not necessarily something common). In that case, we are probably better off heeding the advice of economists (and gaining the experience of the results) than doing nothing (and not gaining this experience); there may not be exceedingly large costs from heeding economic advice, but there may not be very large benefits either, and the result will still be “tolerable.” (At the limit, this sort of argument suggests that we ought to be indifferent about almost any policy intervention, so long as we have reasonable expectations that the outcomes will still be tolerable). Moreover, distributional concerns may dominate in these circumstances; doing nothing has a distributional cost that is passed to some particular group of people (e.g., the unemployed), so we may have reason to be concerned more about distribution than about long-run economic performance. And much depends on our estimates of the epistemic limitations of economic science: sure, economics is not like physics, but is it more like 20th century medicine, or more like 17th century medicine? (And the answer to this question may be different for different areas – different for macroeconomics than for microeconomics, for example).