GOVERNMENT ECONOMIC SERVICE

1. GES GOVERNMENT ECONOMIC SERVICE Making economists better Making better use of economics

2. GES GOVERNMENT ECONOMIC SERVICE Making economists better Making better use of economics Andy Ross Deputy Director GES

3. GES GOVERNMENT ECONOMIC SERVICE Making economists better Making better use of economics Abstract* After a brief description of the GES as a professional community within government, and its wider contributions across government in tackling the recession, the author then gives a personal assessment of how useful the academic discipline of economics has been for professional practitioners in relation to the crisis. *This presentation is not an official statement and must not be represented as expressing the views of the Treasury or UK Government.

4. GES GOVERNMENT ECONOMIC SERVICE Making economists better Making better use of economics Join the GES! WWW.GES.GOV.UK

5. GES GOVERNMENT ECONOMIC SERVICE Making economists better Making better use of economics Although all the elements needed were scattered about the differing strands of economic theory, it is generally accepted that, with notable exceptions, academic economics as a profession failed to give clear warnings or a subsequent steer for policy makers when events ‘unexpectedly’ went way beyond the limits of the tools relied on during the New Consensus.

6. GES GOVERNMENT ECONOMIC SERVICE Making economists better Making better use of economics The economists’ search for a ‘theory of everything’, through the stochastic extension of rationality in a Arrow-Debreu type complete markets setting to macroeconomics, must now be in doubt. Though it remains a respectable if rather arcane research goal. It could even be that, just as neoclassical micro foundations usurped Keynesian macroeconomics, Keynes interpreted through behavioural economics might now create new micro-foundations for macro. .

7. GES GOVERNMENT ECONOMIC SERVICE Making economists better Making better use of economics Governments cannot wait around for the highly formalised rigour of academia to produce an expert consensus on these complex and pressing matters, even if a consensus were remotely likely. These issues are real dilemmas rather than lemmas.

8. GES GOVERNMENT ECONOMIC SERVICE Making economists better Making better use of economics For the professional practitioner a messy pragmatic empirically based approach informed by economic policy history is more useful than an intellectually pure axiomatic make believe.

9. GES GOVERNMENT ECONOMIC SERVICE Making economists better Making better use of economics Empiricists had previously pointed out the weak evidence for the Rational Expectations Hypothesis (REH), and blatant contradictions to the efficient market hypothesis, at least as a generator of efficiency, are now obvious to all but the most ideologically trapped.

10. GES GOVERNMENT ECONOMIC SERVICE Making economists better Making better use of economics Heard at a recent conference: “95 per cent of economists reject herding”.

11. GES GOVERNMENT ECONOMIC SERVICE Making economists better Making better use of economics Whether such concerns about the state of academic macroeconomics turn out to be fair or not, the GES does believe that a more pluralistic, more open to challenge and self-critical, and a more inclusive economics profession would be at least one healthy outcome from the crisis.