There would appear to be a pervasive belief that free markets are a sacred institution that cannot be interfered with as though the markets themselves were experts on what makes the economy run and run well. Markets, however, are merely arenas in which goods and services are exchanged. Similarly, there is a belief in some quarters that economists are experts whom political actors ought to defer to. And yet, to do so is to abdicate responsibility.
Where does this belief that experts ought to be deferred to as though they are the priestly class come from? It comes from public administration theory developed at the beginning of the twentieth century. Public administration theory consists of two fundamental principles, which some might consider to be inherently anti-democratic. The first is that administration needs to be separated from politics. This is the idea that elected public officials make policy because they can always be voted out should the public be unhappy later, and that those who implement policy be protected by civil service rules. They should be free from political constraints.
The second is that public officials should listen to the experts when it comes to policy matters because their knowledge and expertise will in theory result in neutral outcomes in accordance with good governance. So, if economists know what is best for the economy, then they should be listened to. After all, what do politicians know about the economy?
And yet, this misses the point about just what their role should be. Economists steeped in the neoclassical model of competitive markets will generally advise policies that minimize non-market interventions, i.e., government interventions, on the grounds that unfettered markets are also the most efficient. But markets do fail. Markets, left to their own devices, don’t always allocate goods, services, income, and wealth in such ways that everybody’s needs are met.
When markets fail, it is assumed, the government needs to respond in order to ensure that there is something called fairness and equity. We have convinced ourselves that efficiency and equity cannot easily coexist. A market that rewards those with great skills with high incomes and leaves those with no skills poor is said to be efficient, but unfair. Of course, the unskilled could go to school and become skilled. And yet, that assumes that they have the same natural endowments as the skilled, or that they come from the same circumstances.
Were the government to simply do nothing on the grounds that intervention would be inefficient, would it still be efficient were the poor to rise up and overthrow the existing order because their plight has been ignored? Intervention in order to preserve order could be more efficient in the long-term.
The reality is that public officials defer to economists for the same reasons that they deferred to public health officials during the pandemic. They don’t want to be responsible for having to make hard decisions. If they defer, they can easily be absolved of all responsibility, or so they think.
Deference to expertise does not mean that the experts make decisions, but that they are heard before public officials who are accountable make final decisions. In other words, economists merely offer advice, but their advice should in no way be taken as dispositive. On the minimum wage, public officials often vote against increases in the minimum wage because they claim that economists have said the consequences will be higher unemployment. The model does predict lower employment when the wage floor is increased. Some studies do show that employment will be lower specifically for teenagers, but that others may derive some benefit. Other studies show there to be little if any effect at all. Arguably if the data isn’t conclusive, then there should be room for policy experimentation.
Economists are merely providing information, and information which isn’t completely settled. Similarly, public officials perhaps ought not to rely on the “expertise” of economists at the Fed when it comes to interest rates. The Fed has long been guided by the Phillips curve which holds there to be an inverse relationship between inflation and unemployment. When unemployment is low, there will be inflation. To cure inflation, interest rates need to be raised as a way of applying the breaks to the economy, which will result in more unemployment. This has resulted in the Fed looking at declining unemployment rates as indications of inflationary pressures.
Some might conclude that if inflation persists despite tightening of the money supply and unemployment is still low, then maybe the Phillips curve isn’t that informative after all. Still, there are voices calling for the Fed to take a harder line against inflation, which means higher interest rates. But shouldn’t the economists here be providing information that public officials will act on?
The obvious question should be why unemployment is a problem in the case of the minimum wage, but it isn’t in the case of interest rates. And the obvious answer is that different interests are affected differently. In both cases, those who are hurt the most are ordinary workers. It is the ordinary low-skilled worker who is often hurt in the absence of a minimum wage that keeps up with inflation and it is the ordinary worker, especially a blue collar one, who is more likely to lose his/her job when interest rates are increased.
In the last column, we already established that policymakers typically serve the interests of elites at the expense of ordinary workers. It should come as no surprise, then, that deference to expertise serves the interests of the elites. The experts are, after all, among the elites. Those who developed public administration theory during the early twentieth century believed in merit, and that bureaucrats should be hired based on their ability and merit. They were in no way friends of democracy.
On the contrary, the experts, i.e., the elites, would of course know what was good for the public because they were experts. The public could not be trusted to govern because they were assumed to not know what was good for them. Perhaps this should also be a cautionary tale when advocates for judicial activism and court packing schemes are pushing their agendas, they are doing so because they don’t want deference to the masses. After all, that would be democracy. It would also be democracy to have more checks on the experts who are too often deferred to.