Thursday, August 28, 2014

Economic Politics and Expert Judgements

Commonly, economists, actuaries, risk managers and economic decision makers, generally, are both viewed and view themselves, as disinterested, objective purveyors or economic truth.  They simply call it as they see it or rather, make decisions based on market indicators.

However, individual experts may interpret information differently.  Scholarly literature from the social sciences demonstrates that people, laymen and experts alike, rely on desired objectives, culture, and values for decision making.

Thus, expert judgements reflect the relationship between what the decision maker thinks to be desirable and their expectation of what will be.

In short, an expert judgement is indicative of perspective.  

From the political arena of economic policymaking, two recent examples are found.

One recent example comes from the recent speech given by the Federal Reserve System's Chairwoman Janet Yellen,
In my remarks this morning, I will review a number of developments related to the functioning of the labor market that have made it more difficult to judge the remaining degree of slack. Differing interpretations of these developments affect judgments concerning the appropriate path of monetary policy.
The Chairwoman dedicated the majority of her speech to discussing different economic factors and trends that provide a complex picture of the US economy.  

Following Yellen's speech, the FT reported on the mood of the market,
Ms Yellen’s comments on the level of slack in the US labour market were deemed more balanced than had been seen previously – and the mild sell-off in the equity and bond markets appeared to suggest some disappointment among those expecting her to live up to her dovish reputation. 
In effect, these market interests act as a constituency some were pleased and other's displeased by Yellen's interpreation and her foreshadowing of future decision making.

Another example comes from the voting experience of the Bank of England on appropriate monetary policy.

Disagreement by members of the BoE Monetary Policy Committee demonstrates that the same economic information can render different judgements based on perspective.  In addition, the FT suggests that the voting conflict indicates that BoE has a different perspective on appropriate action given information about the global economy,

This leaves the BoE as the only major monetary authority in the world edging closer to a rate rise. In the eurozone, the European Central Bank has pledged to keep interest rates low for an “extended period of time”. The Bank of Japan has pledged to continue with its quantitative and qualitative easing programme until it hits its newly established inflation target of 2 per cent.  

Expert judgement on appropriate monetary policy or means of obtaining monetary policy goals clearly integrate something other than market factors alone.  

The idea that expert judgements about economic matters are somehow objective and not riddled with perspectives, values, desires, personal experience etc. is a form of "boundary work."  The phrase comes from the social science literature and refers to the efforts and practices by some decision makers or practitioners to exclude other types of interests (examples here and here).

Often, boundary work is used to describe the efforts of technological experts to exclude the interests of the public and regulators.  However, delineation between technological decision makers and societal politics is not possible because the two are part of the same social system.

The above examples demonstrates that expert economic decision making is itself political and social. Therefore, decision making is not predetermined by market forces but malleable based on interpretation of information and decision maker's desires about who's values to maximize and how best to do so.  

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