Fringe economics, like homeopathy, needs a dose of reality

Dr Eric Crampton
Dr Dennis Wesselbaum
23 May, 2023

If a lot of the government’s health policy people started looking warmly at homeopathy and other kinds of medical pseudoscience and woo, we’d all recognise that as a problem, right?

Maybe we would want to test our intuitions about it. Perhaps the science had moved on. How to check, for those of us who are not medical experts? We could ask the academics working in our medical schools what they think.

If those academics were predictably dismissive, we might worry about what was going on over at the Ministry.

The same is true about economics and economic policymaking. And the New Zealand Economics Association’s latest member survey is very worrying.

Government-employed economists who answered the survey tend to favour, or be uncertain about, fringe concepts like doughnut economics, mission-based economics, and the circular economy. Meanwhile, academic economists tended to disagree or strongly disagree that these concepts improve economic policy analysis.

The difference is very sharp. Before getting to the numbers, it’s worth considering where the academics are coming from. They do know what they’re talking about.

What unifies economists across fields, countries, and schools of thought is the approach to research: develop a theory and rigorously test it! If the data does not support the theory, develop a better one.

Studying economics to an advanced level has a high entry cost due to the technical nature of the discipline. For the largest part of the 20th century, economic rigour was shown by developing and debating mathematical theories. The empirical revolution in economics, or the “credibility revolution”, which focused on using statistical methods to draw causal conclusions from data started during the 1990s, shifted this focus, and increased the relevance of economics for policy making.

This consensus approach on how economists work appears to be under attack in various ministries. This trend has the potential to have devastating effects as it can lead to policy recommendations which are not based upon rigorous, scientific methods.

Fringe concepts such as Kate Raworth’s “Doughnut Economics”, Mariana Mazzucato’s “Mission-based Economics”, and the concept of a “circular economy” are increasingly used in ministries.

For example, Treasury hosted Raworth as part of its Wellbeing Seminar Series. Mazzucato’s work features in MBIE policy work on mobilising investment to achieve climate goals. And MBIE is also currently tendering for four research projects to “[…] deliver strategic insights and evidence about the Impacts, Barriers, and Enablers for a Circular Economy […]”.

If these new theories are to be forming the basis for policy, it is worth checking whether they are sound.

The New Zealand Association of Economists asked its members, in its latest survey, whether each of these concepts would improve the quality of economic policy analysis, whether a higher weight should be given to these concepts within the process of the analysis, and whether these concepts should be taught as part of the economic curriculum.

Most respondents disagreed (54%) that doughnut economics improves economic analyses and only 19% agreed. For mission-based economics, 40% disagreed, while 25% agreed. Finally, for the circular economy, 52% disagreed that the concept improves economic analysis, while 22% agreed.

Overall, economists seem sceptical about these theories. But the difference between academic and government-employed economists is stark.

To summarize the findings: government economists tend to agree or be uncertain that these concepts are useful and should be taught, whereas academic economists tend to disagree.

NZAE members were asked whether putting more weight on these concepts would improve economic policy analysis. Academics were very sceptical; in all cases, academics’ most frequent response was “Strongly disagree”. Government-employed economists were more likely to be uncertain, or to agree – sometimes strongly.

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Click here to read the NZAE survey

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