EconoMatters

The Will-ists Versus the Should-ists

Message to politicians and economists: Learning to deal with the world as it is, not as we want it to be.

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Takeaways


  • Although politicians are “should-ists,” they don’t see the future; just get their way in the present.
  • The world would be a lot worse place without its fair share of “should-ists.”
  • “Should-ists” cannot be relied upon for their predictions of what will actually happen.
  • The reason economists have a bad rap about the big things is that they are all “should-ists”

Monetarists and Keynesians, Democrats and Republicans, Roundheads and Cavaliers, Jets and Sharks — they’re all at the opposite ends of a particular spectrum. And they rarely agree on much, other than when and where the next fight is going to take place.

Look carefully, however, and there is another pair of opposites when it comes to seeing successfully into the future. I call them the “should-ists” and the “will-ists.”

“Should-ists” are people who tell you what “should” happen in the future. Whatever it is that they are studying or involved in, it “should” happen because it’s been studied, its properties are known — and the benefits supposedly outweigh the costs.

Politicians are natural “should-ists,” of course. However, it’s not their job to see into the future, but to get their way in the present.

Justification for Should-ism

Better-educated economists also tend toward “should-ism.” In my experience, the better educated they are, the more “should-ist” they become.

Their rationale is simple: Why shouldn’t they have a sharper eye on the future, given the time they invested and intellect they ploughed into whatever it was they were studying along the way?

As for myself, I am definitely a “will-ist.” Equipped merely with a Bachelors’ Degree in Economics with Statistics, I became an economist at Morgan Grenfell & Co., Ltd. Right after I started my job, I was introduced in the morning meeting as the “expert” on France.

In that capacity, I was asked what I thought the Banque de France was going to do in the coming months. I got about as far as “Well, what they should be doing is” before the Head of Trading interrupted: “Stuart, we don’t care what they should be doing, just what they will be doing.” Well, let’s just say that I quickly learned my lesson.

Here is an example of a “will-ist” and a “should-ist” in action, just to help you spot the difference between the two.

A few weeks ago, UK Chancellor of the Exchequer, George Osborne announced that he was contemplating the introduction of a balanced budget law with respect to the UK public finances.

“Aha,” I (a “will-ist”) thought to myself. “He’s doing that so he can sign the UK up to the European Fiscal Compact in 2017 and thereby help the UK goal of getting Treaty change.”

Excited about my insight, I shot off an e-mail to a couple of senior journalists I know. “So we agree to something insane and, in return, we get something unimportant,” one shot back. He was definitely a “should-ist,” in case you are wondering about his intellectual preferences.

Why should-ism doesn’t really help

Here is why the contrast between the two groups matters a lot: Most “should-ists” can’t predict the future, for all their love and dedication to the subject matter at hand (or all of your money).

In statistical terms, they over-fit all the equations, but lose predictive power every step along the way. It’s the well-known fit-forecast trade-off in action, actually.

Of course, most of the world’s top policymakers tend to be very well-educated, with PhDs, even professorships to boot. In these fields, the ability to explain the past with clarity is a key criterion for employment.

In my view, there is just one little problem: It generally wrecks one’s ability to predict the future and particularly when tomorrow is different from today. No wonder most Central Bank and Finance Ministry predictions aren’t worth the paper they are written on.

Don’t get me wrong. The world would be a lot worse place without its fair share of “should-ists.” Just don’t rely on them for their predictions of what will actually happen. It’s not their fault. It’s just not their calling.

Come to think of it, though, it’s probably one of the reasons why economists have such a bad rap when it comes to the all the big things they have missed over the years. They are (mostly) a bunch of “should-ists!”

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About Stuart Parkinson

Stuart Parkinson is an economist and writes at The Top Note, a blog discussing ongoing macro and micro-economic issues. Follow him @thetopnote

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