What value is economic research?

Regular readers know that this blog is focused on fixing the financial system, however, occasionally I come across an interesting question like the Queen's Question. Here is another example.

A Wall Street Journal blog asks the question of what value is economic research, particularly when it comes from banks who have a stake in the outcome?

Does the economic research produced by academics and banks have any value?

The question was raised in a paper presented to a workshop at Cambridge University in the U.K. a few weeks ago by Stuart Birks of Massey University in New Zealand.

He quoted from earlier research, where economics was described as “being little more than a rhetorical device to persuade people to accept some preferred policy position.” And it is true that much economic research from the big banks and broking houses could be seen as self-serving.

As a colleague at Dow Jones in London wrote recently: Economics is a “discipline hijacked by banks to prove that what makes them most money ought to be government policy.” That may be an exaggeration, but plenty of bank economic research argues, for example, that if banks are forced to write down the value of their peripheral euro-zone bond holdings, the result will be a catastrophe.

Another line that’s common is that a tax on financial transactions or a cap on bonuses would drive the banks from London. Again, this may be true but it’s undeniably self-serving too.

So perhaps it’s time to start a debate similar to the one that raged a few years ago about equity research. Then, there was much head-scratching about whether there was any value in the stock research produced by broking houses that had relationships with the companies being analyzed....

At the moment, we journalists tend to pay more heed to the analysis produced by the major investment banks, but that could well be a mistake.

And maybe governments too should think more deeply about the motives of those suggesting that this or that option would be best. Best for whom? The population at large or just the writers’ employers?

As one of Shakespeare’s characters says about governments and the rich in Coriolanus: “Care for us?… They ne’er cared for us yet. Suffer us to famish, and their store-houses crammed with grain; make edicts for usury, to support usurers; repeal daily any wholesome act established against the rich, and provide more piercing statutes daily to chain up and restrain the poor.”