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Wednesday, May 09, 2007

Do You Agree?

Bryan Caplan, guest blogging at Britannica blog, says economists agree more than you think:

Economists Agree?!, by Bryan Caplan, Britannica Blog: Economists have a bad reputation for disagreeing with each other. As Paul Samuelson once wrote, “According to legend, economists are supposed never to agree among themselves. If Parliament were to ask six economists for an opinion, seven answers would come back — two, no doubt, from the volatile Mr. Keynes!” In fact, economists’ image problem goes deeper. Even as individuals, economists have a bad reputation for failing to reach any definite conclusions; hence Harry Truman’s famous wish for a “one-handed economist” who could not say “on the one hand … on the other hand.”

Hard as it is to believe, though, neither reputation is accurate. As I show in my new book, The Myth of the Rational Voter: Why Democracies Choose Bad Policies, the best survey data indicate that economists converge on a long list of unpopular positions. Compared to the general public, economists think that markets work very well, that economic interaction with foreigners makes us better off, that saving labor is a good idea, and that the economy is doing well and getting better.

While detractors of the economics profession often attribute these contrarian views to economists’ privileged lifestyle and “right-wing” outlook, the data say otherwise. The typical economist has a high income and a lot of job security, but still sharply disagrees with equally well-off non-economists. Furthermore, despite the “right-wing” reputation, the typical economist is a moderate Democrat. He just happens to be a moderate Democrat who thinks that supply-and-demand governs prices, welcomes foreign competition, and sees the upside of downsizing.

So how did economists get their undeserved reputation? The media bear some of the blame. On any issue, journalists try their darndest to find two economists who disagree and put them on the air. But in the end, I believe that economists themselves are largely responsible for the way the public misperceives them. Even though economists know that laymen deeply misunderstand their subject, economists hate to be blunt about it. They hate to get to the point. And above all, they hate to simplify complex issues - even when the alternative is communicating nothing at all.

The upshot is that when economists get a chance to address a broader audience, they usually wimp out. Although they are convinced that free trade is wise policy, for example, economists prefer to bury that conclusion in qualifications. “What if another economist is listening, and I forget to mention the ‘terms of trade argument’?” (Don’t ask).

The result is that when economists get a chance to communicate with the public - and push policy in a better direction, their audience usually misses the point. And if you listen to enough economists, and fail to figure out what they are talking about, isn’t it natural to conclude that these “experts” can’t agree - or even make up their minds?

What we agree upon, and this is fairly universal, is that idealized competitive markets solve societies fundamental questions - what to produce, how to produce it, and how to distribute it - very well. Many of the disagreements among economists are in one way or another disagreements about how to get as close as possible to this ideal market structure either domestically or globally.

Take an issue like health care. All markets fail to some degree, no market is perfect, but is the failure significant? For example, one potential problem is adverse selection. Is adverse selection a substantial problem or a minor problem in these markets? Theory can help us predict when this might be a problem, but ultimately we have to let the data tell us how significant the problem is. And becasue we must rely on historical data rather than laboratory experiments, the empirical evidence is often cloudy enough to make the answer unclear leaving plenty of room for spirited debate.

But suppose it is fairly clear that substantial market failure exists, what is the best way to fix the problem? Some believe markets are self-correcting and that any government intervention hinders the recovery process. Others believe intervention is needed, but debate the type. Should the government provide the good, or should it regulate the private market? In the latter case, what form of regulation is best? In many cases the differences could be resolved if we had perfect experimental data, but we don't so we must make do with the data we have and use theory to help guide our choices.

Fundamentally, however, the goal is the same no matter what path is taken to get there, to reproduce the competitive outcome, as much as possible anyway. The best approach to take is debatable, but there is little disagreement about the goal of the policy.

There are other debates among economists of course, and we don't always know which model is best for analyzing a problem - another source of dispute that persists in part due to difficulties in sorting models out empirically. But I think many of our disagreements come down to disputes about the best path to take to get as close as possible to the revered ground of the perfectly competitive equilibrium.

    Posted by on Wednesday, May 9, 2007 at 01:17 AM in Economics | Permalink  TrackBack (1)  Comments (44)


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    by the Sandwichman "What we [economists] agree upon, and this is fairly universal, is that idealized competitive markets solve societies [sic] fundamental questions - what to produce, how to produce it, and how to distribute it - very well." --... [Read More]

    Tracked on Wednesday, May 09, 2007 at 11:32 AM


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