Economy · June 24, 2022

COVID-19 and the redemption of economists

The following article first appeared in the 2021 INOMICS Manual.

Download the INOMICS Manual


During a visit to the London School of Economics in November 2008, the Queen asked her guests why no one had seen the financial crisis coming. It took the professors nine months to come up with an excuse, set out in a letter in July 2009:

In summary, Your Majesty, the inability to predict the timing, extent and severity of the crisis and to avoid it, although it had many causes, was primarily a failure of the collective imagination of many brilliant people, both in this country and at the level. international, to understand the risks for the system as a whole.

Throughout the next decade, economists sought to repair the reputational damage to their profession. These self-interest experts recognized the need to restore public confidence in their work. Economists took it upon themselves to engage in public debate, and entire economics curricula were redesigned. Many have decided to broaden their horizons through interdisciplinary work with other scientists, which until then had been less common in economics than in other social sciences (see figure 1).

However, despite these efforts, general attitudes towards economists have remained little changed. In the UK, a majority of voters chose to leave the European Union, ignoring the broad consensus among economists that it would do them material damage. According to a 2017 YouGov poll, economists were among the least trusted of a selection of “experts”, with only politicians faring worst (see Figure 2).

Indeed, the lack of confidence in economists is nothing particularly new. As early as 1925 Frank Fetter wrote in the American Economic Review on the relationship between economists and the public, stating:

Academic economists are subject to popular distrust because they should echo and reflect the views of the business world, while business distrusts them as dangerous radicals because they refuse to worship the altar of Mammon.

As with their lack of foresight prior to the 2008/09 financial crisis, few, if any economists saw the arrival of COVID-19. The economic impact of the pandemic is enormous.
However, since its root cause is biological, economists have pointed the finger less this time. Conversely, the far-reaching consequences of COVID-19
presented a wide range of new opportunities for economists to prove their worth to the world. There has been an increase in demand for key competencies in statistical analysis and forecasting, as governments around the world must make strong choices, weighing the costs against the benefits of various policy alternatives. Economists have found their moment.

The table below lists the initiatives that have been undertaken in response to the pandemic by some of the leading academic bodies and research archives in economics. Along with papers on the general effects of the pandemic on economies, others focus more directly on the social and health effects of various blocking policies. A key feature
in many of these studies there is the traditional and simple economic approach to problem solving: the analysis of trade-offs and optimization within a ‘second-best’ world.

The recent hive of activity among economists is not limited to academia. Indeed, there has been a more general awareness across society that understanding statistics is critical to managing the crisis. The radical changes in daily life imposed by governments around the world have increased uncertainty and the demand to address it. Economists have been called upon to reassess markets en bloc, advise governments on new monetary and fiscal measures to mitigate the economic fallout of COVID-19, and assist more directly in modeling and predicting the epidemiology of the disease itself.

One of my areas of research, the voluntary sector and donor behavior, led me to be commissioned to perform fundraising market analysis for charities in the UK. My co-author Cathy Pharoah and I have considered the impact of the pandemic on both charities’ various income streams and new demands for their services. We measured the interdependence between donor trends and economic growth over the past few decades to project the future path of charitable giving based on the government’s current GDP forecast, recognizing very large differences between best and worst scenarios. In our research report we outline some key tips for fundraisers to consider, to encourage them to think more like economists when planning their appeals and to focus on what is under their control while being ready to adapt to new events as they occur. .

The US Bureau of Labor Statistics already expected greater employment growth for economists than other occupations over the next decade (14% versus 4% growth, see here. Greater use of “big data” to help pricing and advertising, in tandem with a more complex and competitive global economy, are cited as the main reasons for projected employment growth.

Economists are trained to analyze data and are equipped with tools that aid decision making under conditions of uncertainty, whether at an individual, group or social level. While economists may not have been classified as “essential workers” when the health crisis took hold, they are better placed than most to show ways out and think further. Economists also belong to the group of professionals who can do their work remotely. It may only be thanks to blockade and social distancing that epidemiologists and public health scientists at the London School of Hygiene and Tropical Medicine have so far escaped real scrutiny over the lack of preventative measures for COVID-19. Having already suffered that fate when the previous crisis hit, economists now have a great chance to redeem themselves. Many of them are already capitalizing on it.

The above article first appeared in the 2021 INOMICS Manual.

Download the INOMICS Manual



References

Fetter FA (1925) “The Economists and the Public”, The American Economic Review 15 (1), 13-26.

Fourcade M, E Ollion and Y Algan (2015) “The Superiority of Economists”, The Journal of Economic Perspectives 29 (1), 89-113.