Econ 101

While most of our recent public debates have centered around topics on which economist’s disagree, Harvard Economist Greg Mankiw recently posted a list of fourteen propositions that most economists accept, which is an excerpt from his popular macroeconomics textbook. I thought it might be of interest to some of our readers, as discussions of the common good and public policy often touch on these subjects:

  1. A ceiling on rents reduces the quantity and quality of housing available. (93%)
  2. Tariffs and import quotas usually reduce general economic welfare. (93%)
  3. Flexible and floating exchange rates offer an effective international monetary arrangement. (90%)
  4. Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant stimulative impact on a less than fully employed economy. (90%)
  5. The United States should not restrict employers from outsourcing work to foreign countries. (90%)
  6. The United States should eliminate agricultural subsidies. (85%)
  7. Local and state governments should eliminate subsidies to professional sports franchises. (85%)
  8. If the federal budget is to be balanced, it should be done over the business cycle rather than yearly. (85%)
  9. The gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged. (85%)
  10. Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. (84%)
  11. A large federal budget deficit has an adverse effect on the economy. (83%)
  12. A minimum wage increases unemployment among young and unskilled workers. (79%)
  13. The government should restructure the welfare system along the lines of a “negative income tax.” (79%)
  14. Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78%)

He concludes with the following:

Note that the proposition about fiscal policy (#4) does not distinguish between taxes and spending as the best tool for purposes of macro stabilization. Maybe that question should be added in a future poll. I doubt, however, that the answer would make it onto this list of widely agreed upon propositions.

Update: Jim Manzi offers skeptical thoughts on the usefulness of this list (and, by implication, economics generally) here. Money quote: “If Mankiw’s list is the best economics can do, it sure seems like a naked emperor moment to me. Where’s the beef?”

13 Responses to Econ 101

  • Interesting.

    Actually, it struck me as interesting that a number of those points of agreement are still very politically controversial, despite the fairly universal agreement by economists.

    It’s true that more detailed conclusions are subject to more dispute, but then I suppose part of that is that the more detailed a proscription, the more reason people are likely to have to dispute it, and thus the less likelihood that people are going to admit to it being a settled matter. The economy effects us all quite a bit, so it’s probably not surprising that there’s a lot of opinion and dispute as to how it works.

  • Is Economics a science? Or is it “voodoo”?

    There is a reason why the subject was originally denominated Political Economy.

  • The problem is that economics is a social science whose association with mathematics often leads people to mistake it as hard science. The listed principles are basically a function of market economics, and pure market economics assumes perfect information and perfect rational behavior, and of course those two assumptions are never true. This is the real reason business cycles occur, and both poor information as well as irrational behavior are associated with expanding as well as contracting economies. While economic contractions are a normal and necessary response to excesses of expanding economies, they can and often do involve their own excesses, fed by fear instead of greed. Accordingly, political leadership should moderate these excesses by encouraging caution in good times and offering encouragement in tough times.
    While the human condition will never allow for perfect reason or perfect information, markets do work tolerably well as long as poor reasoning is punished, good reasoning rewarded, and information is allowed to flow freely. Non-market economies have no good way of either determining or encouraging rational behavior.

  • Scribbled down viewpoints on each bullet point. Agreed with all except 3- floating rates lead to sinking ships; 8- not sure, so disagree; 13- welfare already an unholy mess, would mess it up further; 14- uh, America, we have pollution licked. Give us something else to tackle. Economics- not a candy mint like Mathematics or breath mint like Sociology. Like old commercial is two- clik- two- clik- two disciplines in one. The more one reads of it- outside of Keynesian mishmash- the more the world makes sense. Read this stuff like laws of physics not those made up by greedy ambitious pols in dead of night. Then Advocates of Hope and Change will not appear as attractive.

  • I can’t say I found Manzi’s criticism all that persuasive. He starts by dismissing half the propositions because they are normative rather than descriptive. He then dismisses the other half because they don’t tell you which policies you should adopt (in other words, because they are descriptive, and not normative). It’s a neat trick, but I don’t find it convincing.

  • I’d also note that Prof. Mankiw’s list was hardly (meant to be) comprehensive. Here, for example, is an older post from Mankiw’s blog in which he lists the rate of support among economists for some of the above cited propositions as well as for some others. Nariman Behravesh’s book also contains a similar list of about thirty propositions that command the support of at least two thirds of economists.

    This hardly means that economics is of a piece with physics (a standard most of the hard sciences wouldn’t even be able to meet), or that economists agree about everything.

  • It’s a neat trick, but I don’t find it convincing.

    Well, I think Manzi’s broader point is simply that economists (e.g. Krugman) often try to shut down debate by saying: “I’m an economist, defer to my expertise,” when, as you observe, economists cannot have the same degree of certainty as practitioners in the hard sciences.

    And I find normative statements less helpful than descriptive statements because normative statements can be driven by considerations other than economic data (or complexities in economic data). For example, in this list economists agree as a descriptive matter that minimum wage laws increase unemployment; but in the link you provided they disagree as a normative matter about whether there should be minimum wage laws.

    That said, I think Manzi’s campaign against economics has reached the point of diminishing returns. He’s right to point out that it’s very difficult to make detailed predictions about the effects of fiscal stimulus, and that economists over-step when they imply otherwise. But that just means economics provides better answers on some questions than others; not that it’s useless as a discipline.

    Insofar as Manzi’s suggesting economists should display more epistemological humility in public debates, I think he’s making a useful point though.

  • Even [note the 'even'] J.K.Galbraith agreed that there was not very much to economics as a serious subject, apart the politics. He pointed out quite simply that there is an overwhelmingly necessary part of human life in which economics is impossible: agriculture. You cannot predict the weather; you cannot predict whether the earth is warming or cooling, the nonsense of the Rev. Mr. Malthus has been disproved generation after generation. It would be an amusing past-time to put together all the predictions about economic conditions, over, say, the last two decades.

    I add to the discussion:
    “There’s an old joke about three guys stranded in the desert, dying of thirst. They have a can of water – but can’t open it. One guy, an engineer, uses a stick as a lever and a rock as a fulcrum and … nothing. The second guy, a physicist, does some calculations, drops the can from a predetermined height at a carefully considered angle and … still nothing. Finally, the third guy, an economist, looks at the can and says: “OK. I have the solution. Assume a can opener.”

  • Not sure why the “even” above. Galbraith was never understood to be a serious economist; he was much more interested in politics. And he was almost always wrong. Read his books, “The Affluent Society” and “The New Industrial State.” They were predictive in nature, and could not have been more mistaken in their predictions.

  • Galbraith thought he was serious, but not as an economist. He was properly interested in politics.

    Have you some examples of his being almost always wrong?

  • Read his books. Among other things, he believed that the power of large corporations (i.e., GM, US Steel, etc.) was so entrenched that market and other forces could not move it. Compare the Fortune 500 of 1959 with 2009, or even 1984.

  • For my sins, I have read his books – all of them.

    He chiefly believed that it was necessary to control [not own] the big corporations, as well as the big labor unions.

    He was a farmer’s son and knew whereof he spoke about agriculture.

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