|0:36||Intro. Is there a core set of ideas that economists hold? Common joke: If you took all the economists in the world and lay them end to end they still wouldn't reach a conclusion. Truman line: looking for the one-handed economist who won't always be hedging. Folk wisdom. Leads people to conclude that economists don't really agree on anything. Hates the joke. True that economists have different values, but they often share the same views on analysis. Example: rent control. Vast majority agree that keeping rents down by law leads to shortage, deterioration of quality, etc. Even left-wing Swedish economist Assar Lindbeck in agreement. In principle, you could agree that rent control has these bad effects but still favor rent control because of other effects, maybe you think it helps a certain group of people you want helped. But for rent control, economists agree that it's a bad idea. Why continued perception about disagreement, then? 1. When economists get together they don't spend a lot of time talking about what they agree about. 2. Most of what people think they know about economics they get from the media. Suppose a reporter is supposed to do a story on free trade. He gets an economist in favor of free trade. Reporter wants balance. But if the main economist against free trade, John Culbertson of U. Wisconsin (now dead), is out that day, he's not going to find balance. What will reporter do? He tries calling an association like the AFL-CIO, and works his way down. He finally finds someone to say free trade is bad. Headline is "Economists Disagree"--but we had one economist versus a lobbyist. Another distinction: Academic economists versus think-tank economists. Can find academic economists who question free trade, but more likely to find them in think-tanks, grinding an axe on one side or the other of the political spectrum. Micro/macro distinction: More disagreement in macroeconomics. In micro more issues are settled. Free trade is micro, island graphs. In the profession most economists would say there is much more agreement in micro. But is even that true? By the late 1970s there was a consensus about inflation. Before that there had been alternative views--cost-push, demand-pull, labor unions. Friedman's argument that inflation is always and everywhere a monetary phenomenon become the accepted view—too much money chasing too few goods. That debate's over. Track how Paul Samuelson's textbook has moved, Fortune Magazine article: in the 1950s, Samuelson's textbook called monetary policy "completely ineffective" in controlling inflation. By the 1980s his textbook changed to saying "fiscal policy is relatively ineffective, monetary policy is much more potent." Agreement on monetarism, monetary policy causing inflation is not just a fad. But how about business cycles? Why doesn't the economy grow steadily and at an even pace? Not much progress amongst economists on this question. Growth is another area in macroeconomics where a consensus is emerging. Not very good at what causes development—poor nations growing—but why rich nations get richer we have a pretty good understanding of. Henderson not as certain of that. Less settled, messy. Blind man and the elephant. Lots of individual pieces of evidence are all pieces.|
|12:21||Micro: Is micro really pretty settled? Rent control has fallen out of fashion politically. Same for price controls generally, a success of economics in the last 25 years. But that's shifting to consider public and politicians. Economists wouldn't have defended price controls 30 years ago any more than today. But what's shifted has been the public seems to have learned something. Economists have gotten something across. Two cheers for economists. Friedman podcast: he suggested that it wasn't attributable so much to economists' teachings as to the public learning from experience. Under that perspective, when another generation comes along without the memory of the negative effects of price controls, the interest in price controls will be rekindled. Easier to find areas where economists have a consensus when there's no political demand coming from the general public. Minimum wage, different form of price control. Analytics the same; historically economists were against it. Bad way to fight poverty. But that seems to be weakening. Still a consensus. Poll done in 1970s: "A minimum wage increases unemployment among young and unskilled workers." 90% of economists agreed. Redone in 1992: 79% agreed. In 2000, 74% agreed. Weakening but still really high. Might find that 80% of the public thinks minimum wage is a good idea. But the original question was about the slope of the demand curve for labor, and in 2000 26% of the profession thought that the demand curve doesn't slope down, no effect, not even a cost of any kind. Badly worded poll questions, though. "Increases employment" is different from "decreases unemployment." To be counted as unemployed you have to be out of work and looking for work. Suppose teenager loses job because of minimum wage, so he might get the message and go back to school or just pull out of work force—not counted as unemployed. Six months ago petition came out in support of raising minimum wage, included Bob Solow and other Nobel Prize winners. What explains that? Dan Klein in Economic Journal, probed why, contacted and surveyed people on the list. "I think ideology trumped economic thinking, I think there was just this desire to go along with something that made them feel good." Like a bunch of physicists signing a petition that repealed gravity. You could think it's worth it even though it causes a reduction of opportunities for low-skilled workers. But there is a cost to indulging in feeling good. Maybe this was a piece of a broader political agenda. The signers analytically might invoke the Card and Krueger study, which found that minimum wage increases employment—one study out of a few hundred that have found the opposite effect.|
|20:46||Maybe ideology plays a much more active role in economics than we like to accept. We like to think of ourselves as scientists. Maybe that's not true. Maybe economists are not very scientific and respond to ideology: e.g., an ideology taking sides on should government be more involved or less involved? What role does that play in assessing policy? Henderson is libertarian but relies on conscience and incentives to keep these matters distinct, in a minority. "So many people will jump on me if I say something I can't justify." "Liberal left economists", "conservative economists"—labels—"free market economist" used, versus simply "economist." Paul Samuelson was the guy who really nailed the case for free trade, intellectually and scholarly way. But he would not be called a "free market economist." Mathematical economists have both found the mistakes, market failures, justifications for government regulation but also lay out the framework for why markets work very well. Samuelson would probably politically identify himself as a liberal, but he is a free market economist. How can someone disagree with supply and demand? When minimum wage, which is a price, goes up, the quantity goes down. Someone could say it's a very small effect. But a small effect is still an effect. Have to grill people one on one, where do we disagree?|
|25:59||Trade. Historically enormous amount of consensus, still is. Has it weakened? 1970s survey: 97% of 211 economists agreed with statement "tariffs and import quotas reduce general economics welfare." By 1992, down to 92%. In 2000 survey, bleeped up to 93%. Pretty much remained constant. But what were those 7% thinking? Effects of trade, whether we should intervene or not, welfare effects of trade. Alan Blinder study: As many as 40 million service jobs at risk of being outsourced over the next 15 years. Leamer podcast. Shocking-sounding number, but when you do the math, even 4 million divided by 10 years isn't a lot in an economy of 140 million jobs, 3% of jobs per year where roughly 20% of jobs disappear every year and are replaced by other jobs. People envisioned no replacement. But Blinder is famous for the statement that trade barriers don't create jobs but create different jobs, and wrote Concise Encyclopedia of Economics. article on this. Activists, NAFTA, biases, versus most economists.|
|30:27||Revised Concise Encyclopedia of Economics (CEE) due out in December 2007. What time period? Did articles change in dramatic ways? First edition done between 1990-1992; second edition 2003-2005; fifteen year difference. In early edition there was no entry for "Behavioral Economics" but new edition has entry. "All economics is behavioral." Term means that in certain systematic ways people will not act in the ways economists' model says. 401K example. Thaler wrote the article. Argues that people are not rational and are subject to behavioral biases. Strong evidence in some areas, hard to disagree. But he may have jumped to soon on what that means for overall policy. Thaler and Cass Sunstein articles, Glaeser and Thaler podcasts, libertarian paternalism. Blog on WSJ. "It's very hard to get from their--I think correct--views about the limits of economics in understanding all behavior. It's hard to get from that to saying a government should do those things, especially when you consider that those same people who are so irrational are running the government." And now they are doing it with other people's money so they are both affected by irrationality and don't have the same incentives to care. Increase in behavioral economists is an area where economics has changed, less consensus on rational actor model. Other CEE articles that have changed their viewpoints? Matter of backfilling, we forgot that in first edition. Stiglitz article on "Information" handled most areas very well but never talked about how prices convey information, Friedrich Hayek, so Don Boudreaux has a new piece on information and prices. Silo problem, people who have done the pioneering work. Five to ten articles improved by same author or different articles. Education. First edition only had article on public schools. Now there is more evidence on things like vouchers, class sizes, and more focus in profession, so new edition article on education by Linda Gorman.|
|37:30||Is an encyclopedia of economics a meaningful idea? Story, first time to have the idea: Henderson at Council of Economic Advisers, 1982-1984, Martin Feldstein inherited and kept him on from Murray Weidenbaum. Larry Summers, Paul Krugman were colleagues brought in by Marty. Lunch would sometimes mix it up a little on the issues: Ben Zycher, Lincoln Anderson, Henderson--all free market, less government thinkers--Summers and Krugman wanted more active role for government. But didn't disagree about free trade, price controls. Larry might have trimmed around the edges on natural gas. Thought "This is more of a science than I had thought." Harkened to summer internship at Council in 1973 under Herb Stein; Sam Peltzman story, UCLA industrial organization class, excited about an economist's statement against natural gas price controls. Sam said, "Eh, big deal. 95% of economists oppose price controls on natural gas." Overstated but getting in a point. "Go through some old memos from the Johnson administration." Hard to get access but found that if you'd asked an economist during the Johnson administration should we get rid of natural gas price controls, answer would have been yes. When economists do get into positions where they need to focus on the real issue at hand, they tend to push the button that says let's deregulate, let's not regulate more. Steve Kelman, Carter administration budget official, later Clinton administration, quoted in forthcoming CEE intro:|
The lawyers are often exasperated [he's a lawyer by training, I believe] not only by the frequency with which agency economists [in other words, economists within the particular agency he was in] attack their proposals, but also by the unanimity among the agency economists in their opposition. The lawyers tend to incorrectly attribute this opposition to failure to hire "a broad enough spectrum" of economists and to beg the economists if they can't support the lawyers' proposals, at least to give them "the best economic arguments" in favor of them. The economists' answer is typically something like "There are no good economic arguments for your proposal!"David Friedman story about Milton Friedman. Paul Douglas, of Cobb-Douglas production function, who later became a senator from IL, very liberal, head of joint economic committee; Milton Friedman would go to Washington to testify; but in a few minutes it was just a dialogue between Douglas and Friedman agreeing that everything other people were saying made no sense. David Friedman: If you have a roomful of non-economists and economists of various ideological stripes, you will find very quickly that on a particular issue about the effects of something--not about whether you should do something but about the effects--you will find all the economists lined up on one side and all the non-economists lined up on the other. Gas price example, demand, supply, public, pundits vs. economists' understanding. People respond to incentives. If tax remains in place a long time, people respond even more than if it's temporary.
|45:30||Economists have more opportunities now in the marketplace than 25 years ago, higher returns to economics Ph.D., range of stuff you can do as an economist has expanded, think tanks, blogs, columnists, nightly news, etc. Has that changed our willingness to use data honestly? Segregate by ideology. Example: Paul Krugman, Sunday New York Times Magazine, if we took money away from the rich and gave it to the poor, the poor would have more and the rich would have less, simple arithmetic, implying that the world is a 0-sum game (that everyone's gain comes at someone else's expense). But that's the biggest fallacy that prevents economic understanding. Yet here is an Ivy League economist coming out in prestigious media outlet saying that wealth is a 0-sum game. What's changed? Krugman, extreme example, Henderson used to read his articles in Slate and felt informed 70% of the time, now under 10%; was so good, Pop Internationalism great book; stunning that same person wrote that and the NY Times articles. Issue is that he doesn't write like an economist. Doesn't address economics. He's not the only one. Using credentials as an economist to reach the public has changed the way economists behave. Don't want to pick on Krugman. In 1970s two economists made money staking out positions: Paul Samuelson, Milton Friedman. Thin market. Today wider opportunity. Not a social problem--just a question of the way the profession works. Climatologists: political environment which hands out grants, money, prestige based on where you fit in political spectrum could affect work done by scientists. Expect it might have an effect; so economists wouldn't be any different. Hoping it's a marginal movement, abused only by some and not vast majority. There is now a return to being provocative. People aren't interested in on the one hand, on the other hand, or thoughtfulness. You make a name for yourself by being extreme or picking a pet issue. WSJ article by Henderson on Arnold Schwarzenegger's health plan, O'Reilly broker called, interested in one extreme line and in riling people up about illegal aliens. Sports is an area where there is now a lot more money. People romanticize sports as idyllic; but it's a business with steroids, growth hormone. Great for economists to have opportunities, but you have to take what they say with a grain of salt. Consensus, but there is a lot of bad economics and bad policy out there. "Lies, damn lies, and statistics." What media source can I trust? You've got to triangulate, listen to multiple sources and people, but don't put so much salt on it that you've got nothing. Is it different in physics? Milton Friedman to physicist, "Do you guys fight that way?" Answer was "Of course we do." U.S. founding fathers.|