Adam Ozimek — blogger at
Modeled Behavior and associate at Econsult
Corporation
In reading the
sometimes polarized debate in the economics
blogosphere, the discipline often appears to
suffer from an excess of disagreement and
uncertainty. But this is more about the incentives
economists face when writing and speaking in the
public sphere than the actual state of knowledge
in the field. In reality economists agree about a
lot of things, and in many cases they do so with a
high degree of certainty.
This fact is on
display frequently at the IGM Economic Experts Panel from the
University of Chicago. This is a panel of 41 of
the worlds top economists who are offered
statements about economic policy to which they can
indicate whether they agree, disagree, or are
uncertain. In addition they rate the certainty of
their answer on a scale of 1 to 10, which allows
the answers to be weighted. Over the past few
months there have been several issues where this
ideologically diverse group of economists have
shown resounding unanimity. Some of these may
surprise people, as it’s fairly obvious that
public opinion would not side with economists with
the same amount of unanimity. So here are a few
things economists strongly agree on.
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The benefits of
free trade and NAFTA far outweigh the costs
None of the
economists surveyed disagreed that the gains to freer
trade are much larger than any costs. And only two
economists even said that the answer is uncertain.
In a space for additional comments, MIT’s Richard
Schmalensee declared “If that’s not right, almost
all of economics is wrong”.
Which is to
speak of the kind of economists in
this survey, not all economists. There clearly
are trade-offs here as elsewhere. And how these
worthies managed to ignore the effects of free
trade policies on demography escapes me
completely. Free trade encourages
borderless-ness and a flood of the poor to rich
countries, in the process depressing wages and
the purchasing power of citizens of these
countries.
Then there
is the way that free trade wrecks whole
industries within nations.
Free Trade
ignores all values except gross bottom line
calculations and in the process distorts social
values, legal precedents, and runs roughshod
over legitimate concerns about national ( or
even international ) security. What are the
added costs to gvt and to society at large due
to huge increases in security costs ? Yes, Islam
is responsible sui generis for a large part of
these costs, but the way the state ( especially
in the USA ) has gone about trying to manage
security is also responsible and a large part of
state policy rests on the presumed "good" across
the board of free trade policies. Except that
free trade sometimes ( or often ) produces
irrationalities in non bottom-line areas of life
and the economy.
Economists have
emphasized the benefits of free trade for a long
time, reflecting the field’s belief in the
importance of specialization, comparative
advantage, and gains from trade. Indeed, these
results are similar to other surveys that show economists
strongly supporting free trade.
So why do pundits
and voters lag economists in supporting free
trade? In his excellent book The Myth of the
Rational Voter, Bryan Caplan provides evidence
that people suffer from a handful of systematic
biases that influence their beliefs, and three of
these can help explain why voters are skeptical of
trade: anti-market bias, anti-foreign bias, and
pessimism bias.
Paul Krugman provides three reasons why
intellectuals in particular resist the theory of
comparative advantage that underpins free trade:
1) opposition to free trade is intellectually
fashionable, 2) comparative advantage is hard to
understand, and 3) they are averse to a
fundamentally mathematical understanding of the
world.
As is reflected in
the comments by some of the panelists trade will
create winners and losers, which may also explain
some opposition to trade. But economists on the
left and the right still struggle the understand
the level of opposition to trade, and the
rejection of the overall gains. Whatever their
reasons for resisting, people should follow
economists lead and embrace the fact that the
gains from freer trade outweigh the costs.
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Government policies
don’t explain high gas prices
Individual’s
beliefs about the extent to which the U.S.
government should be blamed for high gas prices
seems to have a strangely strong correlation with
whether they like whoever happens to be in charge
at the time. Economists on the other hand strongly reject the idea that the
government has much affect on these prices. None
of the surveyed economists disagreed with the
following statement:
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“Changes in U.S.
gasoline prices over the past 10 years have
predominantly been due to market factors rather
than U.S. federal economic or energy policies.”
What
unmitigated nonsense. There are all kinds of
things that gvt can do to bring about favorable
gas prices, such as allowing drilling, granting
permits, negotiating with foreign oil
producers, approving pipelines, selective
regulation to favor or disfavor production
practices of one set of companies over others,
expediting construction of refineries, and so
forth. Yes, there are trade-offs in all kinds of
areas and reduction of oil prices may not always
be optimal policy, but to speak just to the
issue of prices there is much the gvt can do.
Furthermore, to say that all oil pricing is due
to laws of supply and demand is pure hokum.
Speculation has a lot to do with pricing as well
and gvt has the power to curtail speculation.
So why do people
blame politicians when gas prices rise? Supply and
demand, of course. Ideological pundits and
politicians are happy to supply arguments blaming
incumbent politicians, and ideological individuals
are eager to believe them. People should set their
ideologies aside and accept the sometimes
inconvenient fact that market forces, not
politicians, have been the primary driver of gas
prices over the past 10 years.
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The Stimulus and
Bailouts Lowered the Unemployment Rate
Economists may
differ on whether the American Recovery and
Reinvestment Act was worth the cost overall, but
they are in solid agreement that as of the end of
2010 it lowered the unemployment rate. Very few
disagreed with or were uncertain about this. In
contrast, a significant number questioned whether
the recovery act was worth the cost. Importantly,
in the space for comments, Stanford’s Pete Klenow
emphasized what Scott Sumner and others would say
is the central issue: “how much was it offset by
less aggressive (than otherwise) unconventional
monetary policy?” But even stimulus skeptics
should keep their criticisms in perspective:
economists strongly reject the idea that stimulus
is to blame for our economic woes.
If so,
these economists are not thinking clearly. There
is, after all, a major consideration that seems
to be overlooked. Was the bailout managed to
best effect or even managed well generally ? On
the contrary, by giving megabanks a blank check
to do what they wanted, essentially hoard gvt
cash to buy smaller banks, they kept the housing
market depressed and in the process killed the
construction industry, which, in turn, killed
jobs everywhere since construction is a vital
multiplier in the overall economy.
In addition,
economists strongly agree that the bank bailouts
also lowered the unemployment rate. Of course as
Austen Goolsbee commented: “the fact it was
necessary doesn’t mean we should be happy about
it.”
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The Gold Standard
is a Terrible Idea
False
choice. PARTIAL re-metalization could have
important benefits, especially in stabilization
of the worth of the dollar and, in the process,
such things as gas prices --which are pegged to
the dollar in world markets.
This is an issue
that has returned to a certain prominence in the
last few years. But despite it’s popularity among
some on the right — and Ron Paul fans in
particular — economists overwhelmingly agree that the gold
standard is a bad idea. In this sample of leading
economists, 100% of disagreed with the claim that
returning to a gold standard would improve
price-stability or employment outcomes. Nobody
even answered uncertain, because this question
really isn’t up for debate anymore.
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Some Other Things
Economists Agree On
Rent control is bad, congestion pricing is
good, eliminating tax
deductions and lowering rates is efficient, and the tax
deductibility of healthcare creates consequential
distortions.
So economists can
agree, and with a high degree of certainty. You
just have to ask the right questions.
