David Lereah: Have Economists Lost All Credibility?

David Lereah was featured in a Wall Street Journal article entitled “Realtors’ Former Top Economist Says Don’t Blame the Messenger.” Lereah continued to give rosy forecasts even as the housing bubble started to burst.

Mr. Lereah … says he was pressured by executives to issue optimistic forecasts -- then was left to shoulder the blame when things went sour. "I was there for seven years doing everything they wanted me to," he said….

Let’s talk about the credibility of economists. Dr. Lereah lost his by giving in to his employer’s desire for bias.

A friend of mine who was a bank economist was instructed not to give a negative forecast. The bank management was fearful that customers would not borrow as much if they heard doom and gloom. I don't think he lost his public credibility, but he felt less credible to himself.

I have been fortunate to work for companies that wanted to hear the unvarnished truth. During my tenure at First Interstate Bank, the senior leadership said, “If you have bad news, our customers should hear it.” The key takeaway: not all economists are pressured to bias their forecasts.

I’ve been accused of being a shill for corporate interests at times, but the public sees only half of the story.

Here are two little vignettes.

I was once hired by a lawyer defending a lawsuit in which the plaintiffs claimed that their business suffered due to an action of the defendant. I was asked to determine if the business was going downhill anyway, due to general economic conditions. I studied that industry and determined that conditions were actually quite favorable for the business. I told the lawyer that the business would likely have grown. He laughed and said, “I don’t think I’ll be calling you to testify in court.” A few weeks later the attorney sent me an email to say they had settled the claim. I think that my work encouraged the defendant to pay the claim.

In another instance, a lobbyist called me and asked if I can do a study about the benefits of a certain tax credit. I snooped around and decide that the credit was mostly corporate welfare. I declined the project. I have no public connection with the lobbyist or the tax credit, so nobody sees my decision. They just see other projects in which I am paid to voice a professional economic opinion that advances someone’s interests.

If your organization uses an economist (or other professional) in public statements, here’s my advice:

Maintain your credibility. Let your guy call it as he sees it. If your spokesman becomes the laughing stock of the profession, you lose credibility along with him. Even if you fire him, the organization still lacks credibility. The chief economist of the National Association of Realtors should be recognized as an expert on housing, but it will be many years before anyone in that job will have respect.