I am a strong believer that good reasons, arguments, and evidence are what matter, not credentials. So the short answer to “when should we trust an expert simply because they are an expert?” is “never.” We should always ask for reasons before we place trust. Hannes Alfvén was a respected Nobel-prizewinning physicist; but his ideas about cosmology were completely loopy, and there was no reason for anyone to trust them. An interested outsider might verify that essentially no working cosmologists bought into his model. But a “good reason” might reasonably take the form “look, this is very complicated and would take pages of math to make explicit, but you see that I’ve been doing this for a long time and have the respect of my peer group, which has a long track record of being right about these issues, so I’m asking you to go along this time.” In the real world we don’t have anything like the time and resources to become experts in every interesting field, so some degree of trust is simply necessary. When deciding where to place that trust, we rely on a number of factors, mostly involving the track record of the group to which the purported expert belongs, if not the individual experts themselves. So my advice to economists who want more respect from the outside world would be: make it much more clear to the non-expert public that you have a reliable, agreed-upon set of non-obvious discoveries that your field has made about the world. People have tried to lay out such discoveries, of course — but upon closer inspection they don’t quite measure up to Newton’s Laws in terms of reliability and usefulness.
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Monday, September 19, 2011
I am a strong believer that good reasons, arguments, and evidence are what matter, not credentials. So the short answer to “when should we trust an expert simply because they are an expert?” is “never.” We should always ask for reasons before we place trust. Hannes Alfvén was a respected Nobel-prizewinning physicist; but his ideas about cosmology were completely loopy, and there was no reason for anyone to trust them. An interested outsider might verify that essentially no working cosmologists bought into his model. But a “good reason” might reasonably take the form “look, this is very complicated and would take pages of math to make explicit, but you see that I’ve been doing this for a long time and have the respect of my peer group, which has a long track record of being right about these issues, so I’m asking you to go along this time.” In the real world we don’t have anything like the time and resources to become experts in every interesting field, so some degree of trust is simply necessary. When deciding where to place that trust, we rely on a number of factors, mostly involving the track record of the group to which the purported expert belongs, if not the individual experts themselves. So my advice to economists who want more respect from the outside world would be: make it much more clear to the non-expert public that you have a reliable, agreed-upon set of non-obvious discoveries that your field has made about the world. People have tried to lay out such discoveries, of course — but upon closer inspection they don’t quite measure up to Newton’s Laws in terms of reliability and usefulness.
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Your Credit Score Is a Ranking, Not a Score (Cleveland Fed)
Credit scores are used in nearly every part of our lives, from applications for car loans, mortgages, credit cards, and car insurance to even some hiring decisions. It is well established that people with higher scores get better loans, have better jobs, and pay lower insurance premiums than people with lower scores. Because credit scores matter so much, many consumers regularly monitor their scores, and some try to improve them. But when people start paying closer attention, they are often puzzled by how and why their scores change over time.
Credit scores can be hard to figure out. They can change even when one’s behavior has not. Or the same exact credit score can qualify a borrower for a loan one year but not be high enough the next. Part of the apparent unpredictability comes from the common misunderstanding that a credit score is a rating of one’s creditworthiness. Actually, it is a ranking of one’s creditworthiness compared to the rest of the population in the United States at any point in time. In other words, your score depends not only on your credit behavior but also on the behavior of others. If your score changes over time, it means your rank-order among other consumers has changed.
For all the incremental advances and technical details of the euro crisis – a loan to a French bank here, a rise in Italian government bond yields there – the big picture remains the same: the leaders of the eurozone are using spears to take on a nuclear threat.
Sometimes they turn up with enough spears to look curiously menacing. That's what happened last week when the European Central Bank (ECB) led the Bank of England and other central banks in a pledge to keep the continent's private banks topped up with dollars. Sometimes the Eurocrats brandish just a few blunt spears and the markets ignore them – as was the case on Friday, when finance ministers gathered in Wroclaw, Poland, and pledged to exert greater budgetary discipline. More recently, the political leadership of the single-currency club have been talking about turning in their spears for a few small nukes – in a couple of years, maybe. And all the while, the growing chorus of voices outside the golden triangle of Paris, Berlin and Frankfurt urges Angela Merkel, Nicolas Sarkozy and their counterparts and officials to go nuclear. Last week it was the turn of US treasury secretary Tim Geithner, plus George Osborne, Alistair Darling and Gordon Brown – all of them urging the democratically elected representatives of the single-currency area to wake up to the gravity (or "catastrophic risk", as Mr Geithner correctly referred to it) of the euro crisis – and act with commensurate power and authority.
Yet the ministers across the 17 capitals of the eurozone are surely not unaware of the peril their common currency faces. The turmoil in the markets, the rising suspicion with which even big European banks are being viewed, the babel of commentary that now discusses the breakup of the eurozone as a serious possibility: all these register in a Berlin ministry as much as in a trading floor in Canary Wharf. But while the existential threat is obvious, there are sharp divides about how to tackle it.
Put bluntly, the eurozone has neither the structures nor the protocol nor the will to go nuclear. That would mean a co-ordinated effort to sort out the continent's banks – closing down some and nationalising others. While this is happening, the governments of southern Europe need to write off a huge portion of their loans and get some kind of credit to reflate their stricken economies. In essence, this would be doing what Britain did in 2008-09 – but across 17 countries, some of them broke. The hurdles to such a rescue are so huge that it is hard to imagine such a plan ever being put into action. But that is what going nuclear would mean; anything short of that now will probably not stop the euro from collapsing.
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