COVID-19, Political economy, Varieties of ignorance

Why it’s important to acknowledge what we don’t know in a crisis

Why it’s Important to Acknowledge What We Don’t Know in a Crisis
from http://www.cips-cepi.ca

      How do we act effectively when there is so much that we simply do not know about what lies ahead? This is the challenge that policymakers face today on two very different fronts: public health and the economy. There is so much that public health officials don’t yet know about COVID-19, but they have to act nonetheless. As the current economic crisis deepens, economic policymakers must also take steps while facing huge uncertainty about what the consequences will be.

      While this double dilemma is alarming, the comparison between these two challenges is also instructive.

      I spend a lot of my time studying how economic ideas and expertise work, particularly in the context of crises. As I have been watching the current public health crisis unfold, day by day and hour by hour, I have been struck by the parallels and differences in how economic and public health policymakers deal with what they know and, more importantly, what they don’t know.

      It turns out that there are some common takeaways for how to develop policy—and communicate about it—in the context of extreme uncertainty.

1. Wishful thinking and denial are dangerous

      In both public health and economic cases, we can see the both the temptation and the danger of engaging in wishful thinking and denial. Although Donald Trump is the most obvious and egregious example of this kind of willful ignorance, he is not alone. Just look at the UK government’s extremely optimistic (but short-lived) embrace of the theory of “herd immunity” as a way of coping with the pandemic without having to pay the social and economic cost of social distancing.

      Economic policymakers aren’t immune either to the temptations of willful ignorance. We also saw a lot of wishful thinking and denial about the huge economic risks being taken in the early 2000s, which led to under-regulation and helped precipitate the 2008 financial crisis. Today, we need our policymakers to avoid wishful thinking about how bad things could easily get, and take dramatic and decisive steps to support the economy.

2.   Policymakers need to find ways of admitting what they don’t know

      If you pay attention to reputable news outlets and the quickly growing number of scientific papers being published on COVID-19, what you discover is a frank and evolving discussion of what is and isn’t known about the virus and the best way to respond. News sites provide updates on both what we do know so far and what we don’t know yet. In a public health crisis, scientists and policymakers alike are willing to both admit their ignorance and build it into their response.

      When it comes to economic crises, things tend to work differently. Most economists have very definite ideas about how the economy works and how to fix it when it’s ailing. In recent decades, many economists have become convinced that the way to make the economy work best is imposing simple rules—monetary rules for central banks and fiscal rules for government. Added to that is the belief that for a policy to work it must be credible—which means sticking to your guns in following the rules, come what may.

      Of course, during the 2008 economic crisis, policymakers were forced to break the rules in their response. Even the most orthodox of economists (usually) become pragmatists in a crisis. Yet within a couple of years, policymakers treated this response as an exception and have sought to return to “normal” ever since then (good luck with that).

      In theory, a central banker or finance minister isn’t allowed to say “I don’t know” for fear of markets’ panicked reaction.  Yet, in practice, central bankers like our own Governor, Stephen Poloz, have admitted (long before this current crisis) that they are often confronted by extreme uncertainty. We need economic policymakers to take a page from the world of public health and find better ways of communicating both what they know and what they don’t know today.

3.   We need a flexible and contextual response

      Much contemporary economic thinking assumes that the basic rules governing economic behaviour never change. This is a recipe for rigidity, not resilience. It ignores the fact economic dynamics are always social and historical. They depend on how people act, which changes over time. What works in response to one crisis, or in one national context, may not work in another.

      In the public health debate there is a much greater awareness of the fact that the effectiveness of a given policy response depends on how people respond. Because the coronavirus’s spread and mortality rate also depend partly on how we react to it, answers to key questions about how to respond have to be contextual and evolving.

      Although it’s scary to admit our ignorance, it also turns out that it’s vital—whether we’re talking about the novel coronavirus or its effects on our economy today.

This post was original published on the CIPS Blog on March 25, 2020.

Varieties of ignorance

A beginner’s guide to economic ignorance

Ignorance is not the antithesis to knowledge, but is part of it. Wishful thinking, muddling through and other forms of ignorance play a crucial role in shaping economic policy and its effects on society.

We hear a lot about the power of economic expertise—whether it’s the news media calling on the latest expert to tell us where the economy is headed, or a populist critic arguing that experts are out of touch with the real world.

While it is certainly true that governments and international organisations rely on economic expertise to get their job done, there is a lot that these institutions simply don’t know. Sometimes that ignorance is inconvenient, sometimes it’s dangerous, and sometimes it’s politically useful.

Just take a look at some the economic arguments being made in favour of Brexit in the UK, or the willful denialism underpinning Canadian provincial and federal Conservatives’ attacks on carbon taxes, and you can find plenty of evidence of the political uses of economic ignorance today.

It turns out that economic ignorance has a long pedigree. I became interested in the role of ignorance in economic policymaking while doing archival research into the internal policy debates in the early 1980s in the United States and Great Britain, when Margaret Thatcher and Ronald Reagan first came into power.

I had begun the research expecting to find an unmatched display of economic expertise. After all, these were the years when the fathers of neoliberal economics, Friedrich Hayek and Milton Friedman were directly advising policymakers as they and the politicians of their time sought to put neoliberal theory into practice.

Yet what I found when I started to read through the various internal memos and minutes was a great deal of confusion, uncertainty—and, yes, down-right ignorance. This finding led me to ask three key questions: What kinds of ignorance do we find in economic policymaking? What roles does ignorance play? And what are the political stakes involved?

Understanding the varieties of economic ignorance became one of the three key research themes for my time as a Leverhulme Visiting Professor at SPERI and the basis of one of my Leverhulme Lectures on February 6, 2019.

Here are a few of the things that I have learned about economic ignorance (so far).

  1. Ignorance is more complicated—and more interesting—than we generally admit.

Rather than being its opposite, ignorance is always a part of knowledge. As researchers, we begin with a question, not an answer. And even once we begin to answer that question, ignorance remains somewhere in the background. One the tricks of knowing anything well is to figure out what we don’t need to know (this, of course, is one of the greatest challenges in writing a PhD thesis – or just about anything else of significance).

There is always so much more that we do not know than that we do actually know. This should be blindingly obvious, and yet it’s also somehow deeply unsettling for us as scholars (and “experts”) to admit.

  1. Ignorance is always political—even when it’s not strategic

Ignorance can play a strategic role in some cases, as Linsey McGoey has pointed out. Although ignorance does sometimes pose serious practical and political difficulties for policymakers, it can also be quite useful for them to ignore or deny knowledge of certain inconvenient facts.

Yet even when it isn’t strategic or willful, ignorance is immensely political: what forms of ignorance we use, what kinds we avoid, and whether we admit to the limits of our knowledge all have profound consequences for how we act or fail to act.

  1. Ignorance is central to economic theory

It may seem odd to talk about ignorance in the same breath as economics. After all, much conventional economic theory is based on the assumption that markets efficiently use all available information.

In fact, ignorance plays a foundational role in economic theory. When we dig a bit deeper into different economic theories, we find a whole host of assumptions about what is knowable and what isn’t and who should remain ignorant. For example, as both Will Davies and Melinda Cooper have argued, most neo- and new-classical economic theory is premised on the belief that the government not only cannot but should not know too much about the economy. Economic theories like these seek to map out a kind of distribution of ignorance and knowledge that is based both on efficiency and morality.

  1. There are (at least) four different varieties of economic ignorance worth paying attention to.

In digging through the archival records for the early Thatcher and Reagan years, I found four distinct but related forms of economic ignorance at work. Here are a few helpful definitions for those interested in tracking the role of ignorance in past (and present) economic policymaking:

Wishful and magical thinking

Definition: Willfully ignoring how ridiculous an idea is.

Example: In the 1980s, policymakers in both the UK and the US argued that the magic of rational expectations theory meant that it was possible to reduce inflation without the usual pain of a major recession as long as the government’s commitment to controlling the money supply was credible.

Cluelessness

Definition: Genuine confusion about what is going on (particularly when your ridiculous idea doesn’t work).

Example: Once it became clear (about a year into each government’s term) that a) neither the UK nor the US government could control the money supply, and b) recessions of historic proportions were underway, confusion, cluelessness (and finger-pointing) ensued.

Fudging and muddling through

Definition: Doing what you can a) to make your magical thinking seem more believable, and b) in spite of your cluelessness.

Example: Both the British Chancellor and the American Budget Director rejected the economic forecasts produced by their bureaucracies (because they contradicted their magical thinking) and either proposed their own highly inaccurate one (in the American case) or largely ignored it (in the British case). When they were presented by staff with inconvenient facts about the contradictions in their proposals, they resorted to various “presentational” fudges to make them less obvious.

Denial

Definition: Blissfully ignoring all of the above and pretending that it’s someone else’s fault when things go wrong.

Example: This is precisely what both British and American governments did in the years following the abject failure of their early attempts to put their policies into place, denying that these were “real” monetarist experiments or rebranding their efforts as “political monetarism” when actual monetarism turned out a dud. It is also, of course, what we are living with on a daily basis right now, as so many of our political leaders deny responsibility for the failure of our economic thinking and practice over the past decades—and for the resulting damage to economic justice, to our democracies, and to our planet.

  1. It’s not dangerous to admit our ignorance—in fact the opposite is the case.

Although it’s natural to respond to the obvious dangers of many of these forms of economic ignorance by seeking a return to a purer, more absolute kind of expertise, this would be a mistake. Yes, we must be attuned to the ways in which willful ignorance can blur into mendacity and call it out as such. But to pretend that we can avoid ignorance altogether is itself a dangerous kind of wishful thinking.

Instead, we need a more humble and reflexive kind of expertise that acknowledges its limits and recognizes the value of a healthy kind of ignorance—the kind that leads us to recognize what we don’t know, that spurs us on to ask new questions, and that prompts us to find better answers.

This is the second in a series of blogs originally posted on the SPERI Blog on June 14, 2019, outlining the major themes that I explored while a Leverhulme Visiting Professor at the University of Sheffield.