Mar 21, 2018

Let’s Judge Larry Kudlow By His Performance, Not His Degree

Adam Millsap Senior Affiliated Scholar

President Trump recently named Larry Kudlow as the director of the National Economic Council (NEC). The NEC is an executive branch agency whose director advises the President on economic matters and coordinates the administration’s economic policy across the plethora of government agencies responsible for actual policy implementation.

Since the announcement, several people have argued that Kudlow is not qualified to be an economic advisor because he doesn’t have a PhD. Adam Davidson of The New Yorker, for example, claims that only people with PhDs in economics should be called economists.

Since Kudlow hasn’t really started yet, we don’t know if he’s the right person for the job. But whether he is or isn’t has little to do with his academic credentials.

Unlike some other white-collar professions (e.g. lawyers, medical doctors), a person doesn’t need a special degree or a passing grade on a particular exam to be an economist. Many professional economists in both the private and public sector only have bachelor’s degrees, while others have MBAs or master’s degrees.

In fact, since the NEC was formed in 1993, only three of the eleven directors have had a PhD in economics, and every president has had at least two directors without a PhD.

Academic economists typically have PhDs in economics, but not always. Economics Nobel-prize winners Friedrich Hayek, Ronald Coase, and Elinor Ostrom didn’t have PhDs in economics. Other prominent academic economists without PhDs in economics include Gordon Tullock, Steven Landsburg, and David Autor.

As a discipline, economics often highlights the ability of markets to efficiently allocate resources. Thus, it’s not surprising that the economics profession lets the market decide who gets to be an economist: If someone is willing to pay a person to be an economist, that person is an economist. Over time, the market separates the good ones from the bad ones.

The idea that economists need PhDs in economics seems to be part of a broader faith in credentialing, which has been on the rise for years now. For example, many jobs that used to require only a high-school diploma, like administrative assistants, now require a bachelor’s degree.

Occupational licensing is another manifestation of the rise in credentialing. Today, nearly twenty-five percent of workers need a government license to do their job, up from five percent in the early 1950s. Supporters of licensing often claim that government-sanctioned licenses are a signal of quality that protects consumers. In reality, most licensing has little to no effect on quality, but does act as a barrier to entry that decreases competition and raises the incomes of licensed providers.

If all economists were legally required to have PhDs, the results would be similar to occupational licensing—less competition and higher wages for economists. As someone with a PhD in economics, this would be good for me (at least temporarily). But it would be bad for the people who pay for economists and ultimately bad for me as other professions sought similar protections.

Credentials can, and often do, serve a purpose. Certifications or licenses from private organizations can send useful signals about quality or reliability that don’t impede competition in the same way that government mandates do.

Bachelor’s or advanced degrees can also be useful signals about quality and expertise. But if we let degrees be the dominant criterion by which we judge people’s abilities, we will surely miss out on the work of some talented people.

There are good reasons to criticize Kudlow’s appointment as NEC director, such as his recent acceptance of Trump’s steel and aluminum tariffs. His lack of a PhD, however, is not one of them.

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