What Economists Agree Upon

By Sean Carroll | December 1, 2006 11:30 am

Study by Robert Whaples, summarized by Greg Mankiw:

  • 90.1 percent disagree with the position that “the U.S. should restrict employers from outsourcing work to foreign countries.”
  • 87.5 percent agree that “the U.S. should eliminate remaining tariffs and other barriers to trade.”
  • 85.2 percent agree that “the U.S. should eliminate agricultural subsidies.”
  • 85.3 percent agree that “the gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged.”
  • 77.2 percent agree that “the best way to deal with Social Security’s long-term funding gap is to increase the normal retirement age.”
  • 67.1 percent agree that “parents should be given educational vouchers which can be used at government-run or privately-run schools.”
  • 65.0 percent agree that “the U.S. should increase energy taxes.”

They like the free market, don’t they? Well, so do I. I basically agree with all of them except the bit about school vouchers — I even willing to be convinced about that, but the data so far seem to speak strongly against the success of vouchers (as I vaguely recall). The incentive structures don’t really point in the right direction. From the table, note that the above answers lump together “agree” and “strongly agree”; in fact, when it comes to vouchers, the agreement is not strong.

If you disagree with the economists, here’s why. All via Marginal Revolution.

CATEGORIZED UNDER: Miscellany
  • http://skepticrant.com LBBP

    Like you, I mostly agree with all of these except the school vouchers. To use the language from the Fiske article; economists are approaching education from a “market pricing” viewpoint, and I think the only effective way to view education is from a “communal sharing” viewpoint. Phrased another way, education should not be about competition, but rather a general sharing of information that benefits everyone, not just those that are better able to compete.

  • Steve Higgins

    Hmmm, lemmee get this straight… If I disagree with you and ‘the economists’ then it is because I have not evolved adequately? Reminds me a bit of an old Firesign Theater piece, something to the effect of: ‘If you doubt what I am saying, you are probably insane!’

    Sheesh.

  • thm

    I’m very curious what the surveyed economists think the goal of government policies ought to be. My guess is that it’s about maximizing some number, or set of numbers, that they calculate.

    I argue that while some of these numbers are important, they are not the point of government. My reading of the Declaration of Independence suggests that the truly American goals of government ought to be the life, liberty, safety, and happiness of all the American people. My reading of the Constitution suggests that the goals of government are, among other things, to establish justice, to promote the general welfare, and to secure the blessings of liberty, for all of the American people.

    I would further argue that economists’ measures are only loosely correlated with these goals.

  • Jeremy

    Again, agreed as above. Especially on the point that economists need to stay the hell out of education. God forbid we should ever begin running our educational system based on what is cheapest.

    As for the tariffs, while I agree, it’s a scary position to take without the promise that this lowering of our guard would be reciprocated by our trade partners. It doesn’t seem like a fundamentally sound idea to make it inexpensive to import goods while exporting remains more costly. Maybe these economists know something I don’t.

  • George Musser

    I have to confess that my opinions about school vouchers have changed now that I have a daughter about to enter the school system. I used to oppose them because, among other reasons, I worried they would drain resources from the public schools and leave them with the hardest-to-teach students. But here’s the thing: the public schools are a one-size-fits-all model. If the school and teachers don’t suit a particular student, tough. Schools are, if anything, cutting back on “elective” programs in order to put resources into the core — further restricting their ability to handle diversity. And by “elective” they mean things that I consider non-negotiable, such as science and AP classes. Vouchers would help by giving parents and students options. Right now, the only people with options are the rich.
    George

  • EDT

    I think some people (i.e. politicians) don’t fully think about how the effects of tariffs propagate throughout the economy. If I manufacture Widgets in the US and can buy resources from global suppliers, import tariffs are going to raise my overhead costs, and thus my final product costs. Some company in Taiwan can produce the same widget for a fraction of the cost since they don’t have to absorb the tariff costs. This means that any international company looking for Widgets will buy from Taiwan instead of the US (thus dropping our potential export value). Likewise, if I go with the US supplier, my costs are still higher (otherwise, why have a tarriff?) and we get the same result.

    In my opinion, tariffs are a crutch. They are used to prevent American industries from having to adapt to remain competitive on the open market. (e.g. US Steel. Instead of expecting us to find a way to compete, we’ll just make it harder for the “other guys” to sell here. This was supposed to help many steelworkers keep their jobs, but how does this compare to the job/economic growth that could have taken place due to cheaper resources?)

  • Brett

    There are a couple problems with lifting tariffs. The first is the obvious one, that if we have no protection for businesses in this country, while other countries do, that puts our producers at a disadvantage. If both sides in trading relationship have eliminated their tariffs, it may look like an equitable relationship, but there are other, much sneakier forms that protectionist measures can take. When America approved permanent normal trade relations with China, it was sold as a measure that would help our trade deficit with China, rather than hurting it. China would be able to join the World Trade Organization, and as a member state, they would be required to open their internal markets to American products. By and large, that has not happened, and the American-Chinese trade imbalance has gotten worse (although there are other factors that have driven up our trade deficit with China besides China’s subtle trade barriers).

    The second factor is related to exchange rates, which have huge effects on how profitable trade is between different states. Currencies are not exchanged based on “how much of currency X will buy the same in its home territory as will currency Y in its.” Exchange rates can’t deviate too far from this formula (and it’s not so easy to define exactly what that formula is, especially because in countries with very different economies, the relative scarcities of different commodities may be quite different), but a factor of two discrepancy is not at all rare. Exchange rates are driven by speculation, and (just as happens with oil prices, which are also driven primarily by speculation) they may settle into effective equilibriums that are effectively random (or at least, are based on psychological, rather than econometric criteria). This can create a long-term imbalance in the profitability with trade, which cannot be remedied merely by the free market, at least not in a reasonable period of time.

  • Weldon MacDonald

    Nice numbers, but without knowing their reasoning I’m skeptical. Making wide sweeping statements usually implies imperfect understanding of the system involved and the possibility of unexpected consequences. Vouchers may ease an immediate problem, but could lead to a loss of control of the quality of education, if it can be said to be controlled at all.

  • http://name99.org/blog99 Maynard Handley

    There is a useful concept from Computer Science, that of Atomic Transactions.
    An Atomic Transaction is something made up up multiple pieces ALL of which have to happen or disaster will ensue. For example my telling Amazon to send me a copy of a book, paid for with this credit card, means that, at the very least

    * Amazon’s shipping database has to be told to send out the book and
    * my bank has to be told about the credit card transaction.

    If only one of these happense, either I or Amazon get screwed.

    With this as background, the reason this sort of economic list, and most of what we are told economists say, sounds so unsatisfactory, is that we are only given parts of what should be atomic transactions. For example, I imagine that a substantial number, many more than a majority, of those same 87.5% of economists who say that tariffs should be eliminated ALSO add “and there should be significant help provided to transition those who lose their jobs as a result”. The atomic transaction is reasonable, the result, after non-economists pick and choose the pieces they want, not so much.

    I am guessing most of these same economists also come out strongly against the length of current copyright, the existing tax structure, local taxes paying for schools, mortgage interest deduction for individuals, and most of the corporate welfare that is embedded in the complexity of the tax code.
    The collection as a whole makes sense, individual pieces, well, sometimes yes, sometimes no.

    You would not be especially happy with a medical system that listened to the sentence where the doctor said “We’ll cut out his appendix” and ignored the part that said “Obviously we’ll give him anasthetic first”. Yet this is what happens everyday in the intersection of politics and economics.
    IMHO economists ought to rebel at the way their statements are used in this way, or work on some sort of alternative that incorporates real-world politics, but they appear not to have much interest in that.

  • raj

    If and when economists figure out how to make economics into a science, I might sit up and pay attention to their forecasts or polls of various economists. Economics is currently not a science, and so I won’t pay particular attention to the cited article.

    One might seriously ask how accurate any of the prognostications of the sampled economists had anything to do with reality. Probably few, if any.

  • http://www.pieterkok.com/index.html PK

    The fifth statement clearly demonstrates that economists are desk jockeys: You can’t just up the retirement age, because people who do physical labour are already worn out by the time they hit 55.

  • Changcho

    I am assuming this survey is of American economists? The A. Cassel article you link to reaches what seems to me an obvious conclusion, that the market-way of allocation is less-than-universal. Blogger ‘raj’ made the point, with which I agree, that economics is not a science (at least not yet).

    What these economists’ opinions tell me are that most (I am assuming U.S.? It would be interesting to do a similar survey in other countries) of them are technocrats well versed into the ideology of the late Milton-Friedman’s monetarism: the “freer” the free-market, the better. They are not “Economists” (with a capital E) in the real sense of the word, i.e, people who think deeply about how society is organized, about the means of production, about the allocation of wealth, etc.. In this I am thinking about people like A. Smith, Keynes, Marx, Galbraith, Ricardo, and yes, Friedman as well. The technocrats just ask “what would M. Friedman think of this?” and then go on to answer the survey…

    So, let’s not leave economics to the “economists”…

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  • Ijon Tichy

    Increase the retirement age? That might be fine for an office worker who sits on his bum all day, but forcing manual laborers to work past 65 is cruel. Of course, you would have to personally know manual laborers to adequately appreciate this, to have some idea about the sometimes awful and often unhealthy conditions they work under, whether they’re in developing or developed countries.

  • http://arunsmusings.blogspot.com Arun

    When one finds no good reason for the soaring ratio between the compensation of the CEO and the average worker, then one is asked to evolve a bit more?

    What pseudo-scientific nonsense! Why is a physicist purveying it?

  • http://sourav.net/ Sourav

    The World Bank did an interesting study (PDF) last year that attempts to account for the wealth of nations. Switzerland comes out on top with $650k of capital per person, with Denmark, Sweden and United States above $500k per capita; greater than 80% of these amounts is “intangible,” e.g. education.

    The biggest conclusion to come from the report is that 90% of the variation in the net capital per person can be attributed to rule of law and education. In other words, a fair and transparent system of government and a literate populace are preconditions for wealth creation.

    Given what we learned in the 20th century about totalitarianism and economics, the free market is part-and-parcel of these preconditions. Hayek had the brilliance to foresee this arc in 1944, when Keynesianism was all the rage and the Eastern Bloc looked to be a redoubtable foe.

    This is not to say that capitalism is perfect. Certain groups (e.g., the elderly) can fall out of the bottom of the market, and the gov’t has a role in fixing “externalities,” e.g. protecting the environment and funding basic research (:P). Furthermore, one may encounter aspects that offend humanistic sensibilities, like the Exxon CEO’s impressive compensation package or Terrel Owens. But it sure as hell beats the alternative.

  • http://www.pieterkok.com/index.html PK

    Souarev, Sweden and Denmark have a very socialist-style structure of government (with lots of safety nets for the poor, sick, and elderly), and the “free market” is kept on a tight leash. So to jump from those wealth figures to free-market alleluia is unwarranted.

  • http://arunsmusings.blogspot.com Arun

    The Exxon CEO’s compensation package is based on the free market no more than say, telecommunications legislation is voted on by Congressmen based on what the voters in their constituency want.

    Just as there is nexus between lobbyists, think tanks (opinion makers) and legislators, there is a similar nexus between executive pay committees, consulting firms and the board of directors. This has been documented innumerable times in our free press.

    There are other conflicts of interest galore. For instance, the managers of funds that your company includes as options on your 401K typically vote their shares going along with board of directors’ decisions – the conflict of interest is obvious.

    One should paraphrase Gandhi and say – the free market? It would be a good idea.

    The problem is that the class of people who have effective control of the economy can and do sacrifice the free market in their own interests, but promote the free market where it does not affect them; and so far, there is no check on them or accountability for it. The general public, by swallowing “free market” as a religious concept instead of as an empirical one that constantly needs to be tested to see if it applies, aids in this self-deception.

    What is the point of replacing the mythology of God with the mythology of “we live in a free market country” or “in a country where every vote counts”? The first dismissals are “you are indulging in the politics of racism, or of class warfare”. Add on top of that the kind of nonsense that one’s not buying into this secular mythology is a sign of being behind in evolution.

  • http://arunsmusings.blogspot.com Arun

    Here is Warren Buffet, no doubt one of the symbols of the free market:

    “Warren E. Buffett, the chief executive of Berkshire Hathaway and an accomplished investor, has noted the troubling contributions that compensation consultants have made to executive pay in recent years.

    ”Too often, executive compensation in the U.S. is ridiculously out of line with performance,” he wrote in his most recent annual report. ”The upshot is that a mediocre-or-worse C.E.O. — aided by his handpicked V.P. of human relations and a consultant from the ever-accommodating firm of Ratchet, Ratchet & Bingo — all too often receives gobs of money from an ill-designed compensation arrangement.”

    — Mr. Buffett too is behind in his evolution.

  • http://sourav.net/ Sourav

    PK,

    It certainly depends what you mean by “free market:” laissez-faire, or is a welfare state allowed to piggyback on it? By the former measure, Scandinavia certainly lags; by the latter, it is comparable to the United States (for example) because rule of law and private property are sure to a similar degree. (see here)

    What will be interesting is whether market-oriented countries with large welfare states can continue to meet their obligations as their populations age. If not, will there be a deleterious effect on economic productivity? Or liberty, as Hayek (and Friedman later) warned?

  • http://vacua.blgospot.com Jim Harrison

    What counts as private property differs from society to society, and its terms and conditions make a huge difference to economic outcomes, which is why, for example, American business spends so much money and effort attempting to strengthen the law of intellectual property beyond all reason. The political and economic spheres simply can not be disentangled, but that won’t keep the economists from acting as if they can.

  • jw

    When I disagree with economists, it’s usually because they’re using overly simplistic view of human behavior. As a physicist, I can understand why this simplified approach to the social sciences is attractive to physicsts at first. After all, we all like spherical cows. However, humans are too numerous to analyze precisely as individuals, yet too few to treat with a statistical mechanics approach, so economics is firmly in that region where physics gets hard between problems with a handful of particles and statistical mechanics. Economics is striving to be like physics in the complexity and precision of its mathematics, but it lacks the ability to precisely map the real world to those mathematics and thus makes dangerous oversimplifications.

    For example, the real issues behind free trade aren’t tariffs, or such agreements and disputes between parties to such agreements wouldn’t result in thousands of pages of complex legal documents. The real issues about free trade are in the social system around free trade, ranging from copyright and patent laws, environmental regulations, labor laws, unions, and so forth. Similarly, the question isn’t whether one likes the free market, but which free market.

  • http://arunsmusings.blogspot.com Arun

    The political and economic spheres simply can not be disentangled, but that won’t keep the economists from acting as if they can.

    Showing that K-Street lobbyists know more than most economists.

    The slogans of the free market offer little guidance to one on how to solve real problems. Perhaps people here may want to take on the exercise of how to reconcile the free market, private property rights, telecom regulation/deregulation and a desired outcome, like, say Network Neutrality.

    If one goes through the exercise, I think one will see that the free market, property rights, lack of government regulation are all engineering principles, which help guide us to good solutions; and as with all good engineering solutions, there are compromises that have to be made. These are not moral precepts and a good solution may need them to be violated to some extent. Engineering principles are not good candidates on which to base ideologies.

  • http://catownersregrets.blogspot.com serial catowner

    I disagree with economists because they never discuss the costs of the war budget.

    Nor have they made any great effort to help the American people understand the economics of a government which has invested trillions in infrastructure, most of which is used free by only the largest of corporations.

    When do you see a discussion of the difference between an industry like a railroad, which has a huge sunk investment in right-of-way, and a retailer, which has most of their investment in saleable inventory? How can both of these types of industry both be subject to the same “market rules”?

    In short, it’s not that hard to find them ducking the hard questions, in favor of their easy answers that flatter the rich. They’re simply not credible.

  • http://sourav.net/ Sourav

    I am impressed by the great degree of talent and experience among some of the participants in this thread, that they would feel comfortable maligning a whole field of study in a few paragraphs bereft of any evidence. Obviously economists are wasting their time and should just come here to learn about (in no particular order):

    * How a sacred duty like education should not be subject to the afflictions of competition

    * That they don’t understand the Constitution, particularly the bit about “general welfare”

    * Nor understand surveys they participate in

    * How they don’t make testable predictions

    * That they are cardboard cutouts of “real” economists

    * That they blithely promote suffering in the elderly

    * How CEO compensation is vitally important to the productivity of an entire economy

    * That the free market is in fact not perfect, and moreover is just untried elitist dogma

    * How economists fail to study issues like burdens of gov’t and war on the economy, barriers to market entry, or pro-business subsidies

    Clearly, the inferior minds of living economists are too distracted by history, data, and ideological pissing matches to see the truth. They should just do us all a favor and kill themselves so we can hurry up and deify them — it would sure make it a lot easier to dis the succeeding generation of economists without making a coherent argument.

    Speaking personally, I am blessed that the Internet tubes bring this timeless wisdom to my Netscape.

  • whywhy

    @PK: Swedish socialism is a myth as this article points out. Sweden has few trade barriers, few immigration barriers and telecom, banking, insurance, electricity have been heavily deregulated. There is no minimum wage. In Sweden you can choose your electricity provider. Can you do this even in the United States? I wouldn’t say the free market is kept on a tight leash. In fact quite the opposite. So can I get a free market alleluia.

    It is also very interesting to note that every single thing that the economists suggested with the exception of raising the retirement age has already been implemented by the Swedes. They have eliminated and substantially reduced most tariffs and barriers to trade. In the early 1990’s they had actually eliminated agricultural tariffs but this has changed due to the evil EU Common Agricultural Policy. They have implemented education vouchers. They have also reformed their pension system and have George Bush style individual retirement accounts.

  • Doug

    Why do people care about the compensation of CEOs? Our economy is not a zero-sum game, that is to say, a CEO who gets a pay raise does not necessarily take it from some other person. People in productive positions of our economy create wealth, not steal it from others.

    Also, what is the proposed remedy for a CEO making much more than his workers? Should the government tell companies and business owners how much they are allowed to pay their employees (and themselves)? Imagine a small business owner, who busted her ass for years to make her business successful. After years of hard work, she is finally able to hire some low-skilled laborers for some low-skilled tasks, and she pays them $8.00 an hour. She makes $300,000 in a year from her business. The owner makes almost 19 times the amount of money her laborers each make individually! Why doesn’t she deserve it again?

    Finally, one of the more subtle points of people like Milton Friedman is that free-market capitalism isn’t a perfect system, but its the best option in the real world (the non-perfect world). I believe that we should judge our policies by their actual consequences, not by their intentions. If you accept this philosophy, you will find yourself on the economist’s side most of the time.

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Cosmic Variance

Random samplings from a universe of ideas.

About Sean Carroll

Sean Carroll is a Senior Research Associate in the Department of Physics at the California Institute of Technology. His research interests include theoretical aspects of cosmology, field theory, and gravitation. His most recent book is The Particle at the End of the Universe, about the Large Hadron Collider and the search for the Higgs boson. Here are some of his favorite blog posts, home page, and email: carroll [at] cosmicvariance.com .

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