The Credibility of Economic Advice to Government

Abstract

In a challenging paper, Frey and Eichenberger (F/E I992) have argued that ' economists react to relative prices in their capacity as scholars: the competitive American academic market drives them to specialize in publishing abstract papers in narrow neoclassics; the closed European markets induce economists to be theoretically broad and to specialize with respect to institutions. They engage more in advising and practical politics.' They contend that European economists have a 'proud performance with respect to practical policymaking'. More controversial is their prediction that the differences will narrow as a result of European integration, for that will increase the size of the academic market and increase competition between academics, and thereby make the evaluation of academic output in the form of published work a more important indicator of the quality of an economist's output. The authors offer empirical support for their conclusions which I do not dispute, but while I believe their observations offer a useful point of departure for the discussion of the place of advice-giving in the composition of economists' odtput, there are two qualifications to it which strike me as important. The first is that 'professional output' and 'advice output' display elements of complementarity. In my experience, much advice-giving requires not only a broad knowledge of economic analysis but often specialised knowledge in areas in which one may have made a contribution. Indeed, the very experience of advice-giving may improve economic analysis in ways which satisfy academic criteria. The economic analysis of government, and of bureaucracy in particular, is a case in point. Furthermore, economists are no exception in wishing to satisfy not only their 'customers' in either the private or public sector but also their peer group. As I have argued elsewhere (Peacock, I99I b), advice-giving economists may attach importance to long-term income prospects and to public prestige, but self-respect and what Alfred Marshall called ' the desire for excellence' can be sufficiently important for them to wish to maintain their professional reputation. Of course, as they get older, they may no longer stalk the pages of the prestigious academic journals, but that 'fate' awaits most economists, academic or not! My second observation emphasises that 'the proud performance', as F/E call it, of economists engaged in advice-giving is characterised by a continuous struggle to maintain and to improve the credibility of advice. Three problems face economists who are specifically asked to give advice to government, as distinct from those who offer it gratuitously through press articles, pamphlets and the like.