Thursday, 21 February 2013

Graph of the week: Policymakers with degrees

One of my friends pointed out to me a very interesting new paper examining the technical competence of economic policy- and decision-makers. A brief version is available on VoxEU, while the whole paper is here

They are concerned with the issue of should policymakers be experts in their fields (should we have more technocrats?). An issue particularly interesting in times of crises (they find a 22% higher probability that a central bank president would be a PhD economist appointed during a crisis - this was realized in ECB; Mario Draghi, who holds a PhD in economics from MIT replaced Trichet who has a political science degree). 

Here is what caught my attention: (click on to enlarge)
Source: Hallerberg, Wehner (2013) : The Technical Competence of Economic
Policy-Makers in Developed Democracies, Figure 1, pg. 14.
This pattern of degrees shows some very strange findings for certain countries. For example, it would seem that in countries like Chile, Poland or Mexico it's almost mandatory to have a finance minister and a central banker being a highly trained economist. On the other hand it's amazing that developed countries like the UK or Japan have never had a PhD trained economist running the finance ministry, and only in a few cases did the finance minister had some basic economic training. This is one of their findings btw: that new democracies appoint substantially more trained economists than old ones.

I guess in the UK case, it matters more of the competence of the people around you - as suggested by Sir Humphrey Appleby paradox. So as long as the people beneath the minister, working at the Treasury are highly trained economists, it doesn't really matter who your boss is - his role anyway is to promote political goals. Besides, the Treasury Secretary has long been a political position in the UK, where this function basically ensures you the position of No.2 in the Cabinet, and the next likely PM (Gordon Brown is an example). But some basic understanding of economics should exist for a person who wants to run a country's tax system, and make it easier to do business - perhaps this is why in the UK the tax system is so complex - every new Treasury Secretary has his own ideas of new rates, so the system got fully cramped by now. 

For a PM, this isn't surprising, I've rarely heard of a prime minister being a PhD economist - politicians in general tend to be people who have law degrees (I remember some political economy papers testing political career models - Diermeier, Keane and Merlo, 2005 is one of them - and in their summary statistics the share of politicians holding a JD, LLM or equivalent was always around or higher than 60%). So with PMs it's more surprising to see countries who had a lot of PhD trained economists serving as PMs - Slovenia seems to lead the way, where 70% of their PMs had some economic training (have in mind, the country gained independence in 1991). I guess this didn't stop Slovenia's huge economic problems - perhaps the PMs were all "bad" economists - applying wrong pre-crisis and during-crisis economic policies. Slovenia is also interesting because it had more PMs educated in economics than their central bankers (again, it's a short time series to observe, so we're basically talking about a dozen people).
Central banking however puzzles me completely. Isn't this suppose to be where we would employ technocrats? Again, just like with a finance minister, perhaps it matters that the people employed know what they're doing more than what the boss does.

1 comment:

  1. I would be more interested if the lawmakers had degrees in any field other than law. Even a bachelors degree in economics, or in a hard science would mean less fuzzy headed magical thinking, and less falling for fads.