Keynes wrote that “the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else.” So it seems. Economic analysis is at the center of most policy debates, and a new legislative initiative can live or die based on the output of an economic model run by the Congressional Budget Office (CBO) or the Office of Management and Budget (OMB). Thus, policy makers and others have responded to the financial crisis and the ensuing Great Recession in large part by criticizing the economists who seemingly got us into this situation in the first place.
The latest episode of this phenomenon is a July 20 hearing of the House Committee on Science and Technology, Subcommittee on Investigations and Oversight entitled, “Building a Science of Economics for the Real World.” After noting the widespread use of economic models in all aspects of domestic policy, the hearing charter states, “If the generally accepted economic models inclined the Nation’s policy makers to dismiss the notion that a crisis was possible, and then led them toward measures that may have been less than optimal in addressing it, it seems appropriate to ask why the economics profession cannot provide better policy guidance.”
Here are some thoughts why this is the case. Economists excel – and contribute much to humanity – by analyzing data from the past and then providing an objective analysis of what is happening in the economic system. Insights and models drawn from that dataset are then extrapolated to predict future changes in the economic system. This is very effective when future events resemble those of the past. The traits necessary for someone who chooses this line of work include the ability to think analytically, a capacity for objectivity, and facility with large amounts of data.
However, these are not necessarily the traits that would help a person anticipate future events that deviate from patterns established in the past. To do this, one must have a capacity for identifying emerging trends, issues, and “weak signals” of changes in the external environment; the ability to consider alternative possibilities; and an appreciation of subjective factors as well as the objective factors typically captured by economic datasets. This is a completely different skill set from those required to be an economist. Thus, to the extent that we rely solely on economists to advise our policies, we will repeatedly be vulnerable to surprise by events our models failed to anticipate.
Fortunately, several decades ago the U.S. House of Representatives adopted a provision in the House rules that requires each committee to “review and study on a continuing basis…future research and forecasting on subjects within its jurisdiction” (House Rule X, Sect. 2(b)(1)). Unfortunately, House committees have largely ignored this rule for the 15 Congresses since it was adopted. While “the generally accepted economic model” is “used to inform virtually every aspect of domestic policy” (July 20 hearing charter), the requirement to consider potential futures that may fall outside that model is consistently ignored.
On July 30, IAF futurists Clem Bezold and Jonathan Peck attended a meeting of the Project on National Security Reform (PNSR), where Clem presented on “Foresight Opportunities: Implementing the House Foresight Provision.” He provided specific recommendations regarding how each House committee could meet the provision’s requirement. These included developing an oversight and foresight agenda at the beginning of each Congress to identify emerging issues that would change the nature of the problem being addressed by legislation, develop scenarios of the future of the policy area, and determine the topics where “early warning” information must be developed by or for the committee. These steps would fill the gap that exists when you plan for the future based on a model that was built on data from the past.
Economics is good at what it does, but it cannot do everything. While economics has an important role to play in the formulation of policy, policy makers do economists and our country a disservice when they assume that the tools of economics are the only tools they need. Economists live in a world of data from the past and can give us the underlying logic behind the data. Futurists live in a world of trends and “weak signals” and can tell us about important scenarios that lie beyond the constraints and assumptions of the prevailing model. If Congress wants to anticipate the plausible changes that might warrant new policy or legislation, one way to do that would be to conduct the future research and forecasting that is required by their own rules.
