Is it time to regulate the economics profession?
No, but a Code of Ethics would Do No Harm
If you’re a social worker, real estate agent, drain layer, osteopath, financial adviser, dietitian, solicitor, architect or podiatrist, you’ll be aware that your job title is only yours once you’ve met certain requirements and signed up to your respective occupational register. According to Immigration NZ, registration is required for 44 professions, each with their own processes for the giving and taking away of accreditation.
Immigration NZ’s list covers many domains of professional life, yet the job title of ‘economist’ can, in practice, be claimed by anyone. The New Zealand Association of Economists (a non-regulatory body) welcomes members as:
mainly … those who have a degree in economics or commerce, and who in the normal course of work use the tools of economic analysis as teachers, investigators, or advisers on economic matters.1
Given that ‘economic analysis’ can justifiably cover a large range of activity, and economists benefit from exposure to different ideas and methods, the welcoming approach of the NZAE towards membership is a good thing.
But would economists, and the economy, be helped or harmed by a formal accreditation body like our peers in health, law and construction, where credibility must be earned and skills proven? Here, I consider the arguments for and against tighter regulation over who gets to call themselves an economist.
Why regulate professions anyway?
There are four main reasons for regulating the workforce; safety, reputation, frameworks for malpractice, and reducing information asymmetry.
Safety. Some roles, like those covered by the Health Practitioners Competence Assurance Act 2003, directly impact public health and safety. That Act’s purpose is to protect the health and safety of members of the public by providing mechanisms to ensure the life long competence of health practitioners. By setting minimum standards for education, training, and experience, regulatory bodies ensure that practitioners have the necessary knowledge and skills to do their work.
Reputation. Regulation helps uphold the reputation of a profession by setting standards. For example, an experience with one rogue chiropractor could put you off the whole profession, but by limiting who can call themselves chiropractors to those with suitable experience and qualification, there’s a reduced risk of reputational damage to the non-rogues.
Frameworks for when it goes wrong. No matter what restrictions are put on entering a profession, there will always be some rogue players who cause harm. Registration also means an established process for de-registration (e.g. doctors can be struck off the register, and barristers can be disbarred). These steps prevent further harm, allow justice and voice for victims, and again uphold the reputation of the profession.
Reducing information asymmetry. Regulated professions tend to involve specialised knowledge that can be difficult for the rest of us to assess. If I’m injured and looking for a physiotherapist, the idea of choosing based on who has the best search engine optimisation might not get me the best results. A list of accredited practitioners gives a level of assurance about qualifications and competence.
Regulation comes with a cost
Of course, the benefits of occupational licencing come with a cost. By restricting supply of a service, the licence can serve to push up the price paid by consumers (a financial transfer from consumers to licensed producers). And a consumer might actually be well informed, and prefer a lower quality service for a lower price, and be unable to do so (a welfare loss). Research on the US labour market found that the wage benefits of occupational licensing were concentrated primarily among people who are already well paid.
Regulating the economists
Clearly, despite the costs, some roles are better regulated. But what about economists? Do these reasons apply to us?
Economists can do harm …
As a professional group, we are largely turned to for guidance in tough economic times (whether it’s high inflation, high unemployment, recession or exogenous shock), and policy makers acting on bad advice can make the problem worse. A regulatory framework would enforce ethical guidelines for economists, and promote transparency, integrity, and responsible conduct in our analyses and recommendations. This could protect against conflicts of interest and unethical practices.
On the other hand, it’s difficult to say how much bad economic advice is the product of conflict of interest or unethical practice, and how much is from institutional, or systemic, problems in the economics discipline. There’s a danger that more explicit training requirements could simply increase our over-confidence without increasing our accuracy, and generate more harm.
… and do have a dodgy reputation
In 2019, economists were among the least trusted professionals in the UK. A regulatory body could provide oversight, ensuring that economists adhere to professional standards and methodologies. This approach might enhance our accountability, allowing for greater transparency and evaluation of our work, and improving our reputation at the same time.
That said, economics is a discipline that thrives on diverse perspectives and the freedom to explore new ideas. Regulation might stifle intellectual creativity and limit the range of economic analysis by imposing rigid standards. It could discourage economists from engaging in innovative research and alternative approaches to economic thinking.
A Code of Ethics may reduce harm at low cost
In practice, economics is best when exploring new ideas and methodologies, and signing up to an overarching way of working is likely to inhibit this freedom. The reality of enforcing regulation would present practical challenges, particularly in defining the boundaries of the profession. Determining who should be subject to regulation and who should be exempt could be a complex, unfruitful task.
Yet the capacity for economists to cause harm is inescapable. This is why I conclude that, while formal accreditation is neither feasible nor desirable, an ethical declaration would be a useful reminder of our role and responsibility. A Code of Ethics might go some way to encourage humility in our estimations, models and predictions, and appreciate the role our own world views take when informing our work.
By
See membership on the NZAE website.
Don’t you need to analyse this in much more depth, including some reference to published literature and a summary of such debates in other counties? Also what is the case that poor economic advice was unethical? Is there any example you could give? The RBNZ’s mistakes were very costly, but I don’t see them as unethical. It had to make tough calls. Also, we saw with the recent Royal Society censorship of its members who spoke up for the scientific method that there is no reason to assume a body with that power to censure will not abuse it.