Economists’ Credibility: The Case of David Lereah

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

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 snoop 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.