Who thinks economists know what they’re doing? Some econometric evidence.
by Chris Auld
Who thinks economists know what they’re doing? And who thinks we don’t have a clue? Has the financial crisis altered the public’s perceptions of economics? And if so, which people tend to have changed their minds? Sex, ethnicity, immigration status, religious attendance, and political ideology do not, some evidence presented in this post suggests, predict beliefs about economic understanding. Older people trust economists somewhat less, all else equal. The only basic demographic factor which is highly associated with the belief that economists don’t know what they’re doing is low educational achievement. The financial crisis does appear to have reduced the public’s credence in economists’ competence, but basic demographics don’t strongly predict which people changed their minds.
The U.S. General Social Survey, a random sample of adults, asked respondents the following question in 2006 and 2010, a couple of years before and a couple of years after the crisis:
The first issue is federal income taxes. Some people say that reducing income taxes almost always helps the economy grow. Others say that reducing income taxes has very little long-term impact on economic growth but could cause a big increase in the deficit. Please look at Card B10. (On a scale of 1 to 5, where 1 means “Very Well” and 5 means “Not at All”), how well do [economists] understand the likely effects of reducing federal income taxes?
As far as I can tell responses have not been analyzed in the literature. This is not a particularly good question to proxy beliefs about the state of economic science: it’s not well-posed. I’m not sure what the distribution of answers would look like if we randomly sampled economics professors, but I’d be really surprised if they were piled up on “5 Very Well.” Yet it doesn’t seem unreasonable to interpret is as a rough index of beliefs over the credibility of economic science. The distribution of answers (n=1,287) is displayed below, stratified by year:
Economists enjoy more popular support than I would’ve guessed. Most people think economists understand the effect of taxes on growth at least moderately well. Overall, just under a third think we understand “very well,” although that proportion declines between 2006 and 2010 from 34% to 24% (p<0.01). About 15% of respondents think we understand the effect "Not at all" or just a bit better (responses four or five on the five point scale) in 2006, rising modestly to 18% in 2008.
Who tends to believe economists know what they're doing? Who became more cynical of economic understanding between 2006 and 2010? Regression time. I choose some basic demographics as explanatory variables: age, sex, ethnicity, education, and I also consider a measure of religious behavior (does the respondent attend church at least once per week) and of political ideology: dummies for "conservative" or "liberal," relative to "moderate," generated by lumping all conservative or moderate responses on a seven point scale together.
The dependent variable is an ordered response taking integer values from one through five. Consider linear probability estimates (OLS) of the probability the respondent chooses category 1, economists understand "Very well," and those of categories 4 or 5, "Not at all." I choose OLS since I want to include interactions between a 2010 dummy and all covariates to check, and test, how things change between 2006 and 2010, and interaction terms in nonlinear models are a pain in the ass. Marginal effects from probit models were similar.
A set of regression estimates can be viewed by clicking here. Older people are somewhat less likely to think economists know what they’re doing. In 2010 but not 2006 there is some evidence that people who attend church are more likely to believe economists know what they’re doing and less likely to believe economists know nothing at all. Men appear to be a little more likely to believe economists know nothing at all. Political ideology, perhaps surprisingly, has no traction in explaining credence in economists.
The big story is education: people with little education are much more likely to report that economists don’t know anything at all, and much less likely to report that economists understand things very well, than people with better education. The unconditional probabilities of people who report economists know “nothing at all” are displayed below:
and the regression estimates on educational categories (omitted: dropouts) are as follows:
t statistics in parentheses, see text for list of other covariates.
* p < 0.10, ** p < 0.05, *** p < 0.01
More education is highly and statistically significantly associated with lower probability of reporting economists understand little, and with higher probability of reporting economists understand a great deal.
Perhaps because the sample here is relatively small, none of the differences between coefficients in 2006 and 2010 are statistically significant in explaining either high or low credence in economists, and moreover they are not jointly significant. Ordered probit and semiparametric ordered response models (not displayed) lead to similar conclusions, although there is some evidence that people with graduate educations revised their beliefs downwards more so than people with less education.
If you wish to replicate or extend these results, download the public use GSS dataset from NORC here. Download the Stata .do file which generated the results above here (change the extension from .doc to .do, it’s not really a Word file). Please let me know should you find an error in the code.