In the Age of Information, we face an overwhelming barrage of high-minded studies and reports that claim to offer the final word on this or that. As it relates to matters of economic policy, we are pressed to lend ever increasing amounts of trust to the power of statistical analysis and the reliability of research from a variety of academics and economic planners and soothsayers.
In a video series for the Hoover Institution, economist Russ Roberts seeks to illuminate the limits and complexity of all this, reminding us why it’s harder than we typically imagine to truly understand the drivers and direction of everyday economic life.
“We often have preconceived notions about how the world works, and that makes it hard to look at numbers objectively,” Roberts explains. “We tend to embrace studies or data that confirm our worldview, while dismissing or avoiding evidence on the other side.”
In the first segment, Roberts uses research about middle-class stagnation to prove his point: “How’s the American economy been treating the middle class over the last 40 years?”
We hear arguments on all sides about the effects of economic growth: who has benefited, suffered, or stagnated, and how much? Has the middle class really been treading water over the past few decades? Have wages actually been stagnant? Have all or most of the gains gone to the rich? Have new innovations and cheaper consumer goods benefited the poor? Or has purchasing power decreased?
Have we had any progress?
“It should be straightforward to take a measure of wages or income for the middle class or the average worker and correct for inflation,” Roberts says. “But it’s not straightforward at all.”
Indeed, much of it depends on our assumptions, biases, and blind spots, not to mention the limits of the studies themselves. Pointing to a range of approaches and perspectives from researchers such as Paul Krugman, Jared Bernstein, and Scott Winship, we see how quickly the data can be tweaked and re-purposed according to one’s arguments or ends.
“Who’s right? What’s the answer?” he asks. “…Do you want to get depressed about the state of the American economy and feel justified that we need to do something about it? I’ve got just the picture for you. You want to feel optimistic and think we should leave things alone? I’ve got that, too…Where’s the truth?”
“The truth, it turns out, is complicated,” he concludes.
Roberts promises to uncover the deeper details in segments to come, but the initial dilemma he describes is one that ought to instill a distinct humility and skepticism in all of us. Indeed, as we look before and beyond the more focused debates about wages and prices, we see a range of other nonmaterial, hard-to-measure forces at work, whether spiritual, moral, institutional, or otherwise.
Taking all this into account, we should remember economist Peter Boettke’s advice about approaching our role as economists as discerning prophets vs. all-knowing saviors or “practicing engineers” — whether we’re professional academics or everyday observers. “The economist as prophet is more likely to utter ‘Thou Cannot’ than ‘Thou Shalt Not,’” Boettke writes. “This sort of economics has a default, though not inviolable, respect for the workings and value of institutions that have survived the process of social evolution.”
Further, as “cautionary prophets,” we don’t just wield humility and consult our inner skepticism about missing variables x, y, and z. We also assume a renewed regard for human possibility, human institutions, and the mystery of human exchange, never mind the abundance of a Creator God.
As we recognize the limits of the tools in our hands, we also learn to appreciate the unknown and respect the power and capacity of individuals and institutions — just as much, if not more, than the sciences we’ve created to study them.