The Economics of a Wealthy Academy

There are countless examples of economists disregarding survey data in which a representative sample concludes that the American economy is concerning, generally countering with some favorable economic figure. Although the data can be noisy, metrics poorly calibrated, samples biased, and respondents irrational, there is also the possibility that these two groups are just talking past each other and that economists are correctly measuring the wrong thing—and perhaps more subtly—that economists are themselves not representative of most Americans.

Mounting empirical evidence shows that economists disproportionately come from wealthy backgrounds, which—taken in combination with research showing that groups unaffected by a problem are more inclined to ignore the consequences—suggests an outstanding tail risk that economists could systematically underappreciate the concerns of working-class people. New research suggests that the wealth divide is even worse when considering academic tenure tracks, whereby the most influential economists at the most influential schools are more susceptible to this basic fallacy. Now, noise and data revisions are table stakes in economics. Still, there remain much more fundamental questions about the appropriateness of the underlying data, like whether or not GDP is a good measure of economic well-being or if the basket of goods used in inflation calculations is just wrong. These are known issues that have been mostly shelved for decades but have profound implications on modest-income families, meaning families near or below the median.

The aforementioned disconnect between researchers and respondents seems understandable when you take seriously the issue of having poorly calibrated metrics, that potentially do not even properly signal the fundamentals, in combination with an academy that is removed from the consequences. Being out of touch with average Americans leads economists to frequently miss the point when consumers broadly complain about the affordability crisis, arguing how inflation cannot be that bad because a Big Mac is roughly the same price now as it was 5 years ago, instead of acknowledging what people are complaining about, including that the price of an average home has effectively doubled over a generation compared to a normal income.

Economics is the most influential social science in public policy. It is also, by definition, the best positioned to study distributional issues. This means that while economists study poverty and provide policy solutions for the poor, they often come from wealthy backgrounds. Correcting the issue of the academy being over-represented by researchers from affluent backgrounds would take generations. It would involve adjusting admissions at a time of increased scrutiny, and fixing pipeline problems, and would likely not be implemented effectively, considering the history of admissions with regards to race and gender has been slow, clumsy, and often resisted. In the interim, the academy should at least recognize this blind spot and be more open to criticism when working-class people report that they are struggling. The empirical literature is clear and getting clearer: Economics—the field tasked with studying inequality—is over-represented by those from privileged upbringings, and thus limited in its ability to relate to the concerns of the poor.