David Henderson on Disagreeable Economists
Jul 30 2007

David Henderson, editor of the Concise Encyclopedia of Economics and a research fellow at Stanford's Hoover Institution, talks with EconTalk host Russ Roberts about when and why economists disagree. Harry Truman longed for a one-armed economist, one willing to go out on a limb and take an unequivocal position without adding "on the other hand...". Truman's view is often reflected in the public's view that economic knowledge is inherently ambiguous and that economists never agree on anything. Henderson claims that this view is wrong--that there is substantial agreement among economists on many scientific questions--while Roberts wonders whether this consensus is getting a bit frayed around the edges. The conversation highlights the challenges the everyday person faces in trying to know when and what to believe when economists take policy positions based on research. Is it biased or science?

Noah Smith on Whether Economics is a Science
Noah Smith of Stony Brook University and writer at Bloomberg View talks with EconTalk host Russ Roberts about whether economics is a science in some sense of that word. How reliable are experiments in economics? What about the statistical analysis...
Brian Nosek on Truth, Science, and Academic Incentives
Brian Nosek of the University of Virginia talks with EconTalk host Russ Roberts about how incentives in academic life create a tension between truth-seeking and professional advancement. Nosek argues that these incentives create a subconscious bias toward making research decisions...
Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


Doug Fechter
Jul 30 2007 at 9:14pm

Great podcast as usual. However, there seemed to me to be a little inconsistency in the message.

Prof Henderson starts the podcast by affirming that, contrary to popular perception, economists actually do agree on a wide variety of matters, especially when it comes to ‘analysis.’

Through the middle of the podcast there is discussion of where there is disagreement within the profession (macro vs micro; academia vs think tanks; ideological factors; incentives to be provocative).

At the end, Prof Roberts says that there is no simple answer as to which economists are ‘truth tellers.’

By the end of the podcast the impression is that economics is a vast hodgepodge of perspectives. Is that the impression you intended? Shouldn’t ‘most’ economists analyze issues in a consistent manner?

paul corrado
Jul 30 2007 at 10:52pm

I would think that most economists would come to the same conclusion on issues such as the effect of minimum wage on employment or how tariffs affect trade but each may look at it from different perspectives (as was mentioned in the podcast). Is the goal of a society to have the least unemployment, the greatest happiness in a society, the best standard of living, the largest GDP, the least negative impact on the environment, social justice for all, least chance of nuclear war, economic growth? Economics may find correct answers to some questions but different economists should have different answers of what to do. One economist may say something will increase efficiency so that is good while another says yes but in doing so it will increase pollution and that is a more important issue. Another may claim the same effect will raises the standard of living and that is good and yet another says it lowers overall happiness in society so it is bad.

Economists may be great at interpreting the data but you may also want philosophers, social workers, business owners, environmentalists, city planners, police and physiologists (to name a few) to help frame the questions or goals.

Convincing a group of unemployed US factory workers that global trade is good (even if the people that study this, economists, overwhelming agree it is) can be as hard as convincing some people that global climate change caused by humans (overwhelmingly agreed upon by scientists) and other man made destruction caused by human consumption could have a drastic effect on our ability to survive as a race.

I like having two handed economists.

Thanks for the pod cast and all of the work and time you put into it each week. It is immensely appreciated.

Donald Browne
Jul 31 2007 at 6:45am

Again, a most informative conversation. But, it did seem to digress into the vast differences economists have as to the “truth” of the matter of ecomomics.

Under the theory of free markets, however, would not the “disagreements” among ecomomists eventually even out in the marketplace? Would not the econ bloggers, think tank econs, television econ commentators, and all those proposing “biased” statements for profit, be taken care of, in the end, by the free market, and thereby either “win or lose” those arguments by market forces?

Jul 31 2007 at 8:16am

A really good discussion so far. Had to stop my work out and try to write down this thought.

The points that economist seem to agree on such as minimum wage, free trade and inflation are arguably less or at least no more agreed on then the idea among scientist of anthropogenic climate change. Interesting to me because my impression is that many economist who hold an opinion on climate change like to stress that the science is unsettled. I also have the impression that the more “free market” an economist is the more likely he is to disagree with the climate change science or its consensus. Added to that is the implications for economic theory that climate change may have if its scientific experts are right.

Thanks again for a fascinating discussion.

Jul 31 2007 at 8:25am

My ideas on minimum wage are as follows.

When I was a doctor in a 6 person office we often had to discuss raises for our employees. My perspective was that if we raised their wages we would have to cut ours and not that we’d have to fire some one. When we have huge and increasing gaps between workers and management isn’t it possible that “no one ” needs to be laid off or hiring need not be froze but in fact that those on top could “spread the wealth” a bit more to accommodate the increases?

I’ve also heard the argument that increasing the minimum wage increases money spent locally by the workers as opposed to it going into some CEO’s off shore Jamaican account or being funneled to the Bentonville local economy which may actually explain an advantage of increasing the minimum wage.

Doug Fechter
Jul 31 2007 at 8:30am

Oh, by the way, how about having an economist like Robert Solow, Joseph Stiglitz or another of the 664 economists who signed the minimum wage petition as a guest on one of the podcasts? Probably you’ve already thought of that (or maybe you already did it and I missed it) but it would be interesting to hear first-hand about the thought process.

Jul 31 2007 at 9:02am

Great podcast!

Donald Browne writes: “Under the theory of free markets, however, would not the ‘disagreements’ among economists eventually even out in the marketplace? Would not the econ bloggers, think tank econs, television econ commentators, and all those proposing ‘biased’ statements for profit, be taken care of, in the end, by the free market, and thereby either ‘win or lose’ those arguments by market forces?”

This is an interesting thought; however, I don’t think that it’s particularly pragmatic. As economists, we learn about the powerful effects of information asymmetries to skew prices in medical markets and auto repair markets, etc.
These same information asymmetries — I speculate — have similar effects on the market for economic commentators. Essentially, the general public knows very little about economic theory. Even more importantly, they also know very little about what causes the economic conditions in which they live — if they even take the time to analyze them. This being the case, television and internet economic pundits can get away with saying pretty much anything they want, since they know that they will not be held accountable by the public for whether or not their arguments work practically.
Now I suppose someone could then make the argument that, “Yeah, but when my mechanic consistently fails to fix the problem with my car, I’m going to stop using his services.” This is true; however, the market for economic commentary is different. No one expects that the talking head he/she is listening to on television is going to fix his/her — or the country’s for that matter — economic problems. Therefore, there is no way to hold them or their ideas accountable. This is why some pundits and pseudo-economists can win the favor of people by denying the existence of certain basic economic laws — like downward sloping demand curves for example.
Furthermore, like Dr. Roberts and Dr. Henderson said in this podcast, the people who allow access into the arenas of public economic — or pseudo-economic, depending on your perspective — discourse place a higher premium on controversiality than they do on the saliency of economic arguments. Therefore, at least in theory, this barrier to entry — controversiality — coupled with the fact that the public knows very little about true economic theory lead me to believe that the market for economic opinion is not a free market at all.
If this is correct, then there is very little chance that a so-called free market for economic punditry will weed out the true economic winners and losers.

Caveat: I do not think, however, that this applies to the market for economic scholarship, where information asymmetries are minimized and controversiality, though prized in some cases, is subordinated to saliency of economic analysis.

Jul 31 2007 at 12:05pm

Prof Roberts,

I enjoyed very much this week’s interview (your point about the popular misunderstanding of simultaneous increases in driving and gas prices is one of my personal pet peeves). For partially self-serving reasons, I was particularly interested by the brief mention of the economic literature on education – its increase in volume and, concomitantly, understanding, over the last 15 years or so.

If you are still taking show requests, I would be very interested in hearing an amplification of this topic. What I think would be especially interesting to a broader audience is what economists have had to say recently about the relationship between returns to education per se, returns to “observed ability/skill” (in terms of measured intelligence, test scores, etc.), and the apparently increasing returns to “unobserved ability/skill” (things like motivation, communications skills, or networks and networking, perhaps). A topic that dovetails with the above is the intergenerational mobility of human capital, which has obvious implications about the distribution of wealth, issues of social and economic equality, and lots of room for policy debate (is generating increased equality – by this or any other mean – desirable? feasible?)

Two relatively recent books that discuss related topics and might focus the search for interviewees or topics for an hourlong show is “Meritocracy and Economic Inequality”, edited by Kenneth Arrow, Sam Bowles, and Steven Durlauf, or “Inequality in America: What Role for Human Capital Policies?”, an excellent ‘debate’ between Jim Heckman and Alan Krueger, either of whom would be dream guests, IMO.

Thanks for the consideration, regardless. I would be interested in any interviews on education (it’s been a year since the last one, despite how this interview is tagged!), and I appreciate the free (from my perspective) public service you are providing by producing this show!

Russ Roberts
Jul 31 2007 at 1:13pm

Lagged variable,

Next week’s podcast will be with Rick Hanushek on educational quality and how differences in growth rates can be explained by quality rather than quantity of schooling. I think you’ll enjoy it. Thanks for the other suggestions.

Michael Rogers
Jul 31 2007 at 3:38pm

I’d like to suggest an author interview: Robert Frank, author of Richistan: A Journey Through the American Wealth Boom and the Lives of the New Rich (http://www.amazon.com/Richistan-Journey-Through-American-Wealth/dp/0307339262/ref=pd_bbs_sr_1/105-0411458-7914818?ie=UTF8&s=books&qid=1184879461&sr=1-1)

I enjoy all your episodes — keep up the good work.

Doug Fechter
Jul 31 2007 at 3:52pm

To Muirgeo,

Let me give you a couple of different examples from my personal experience.

The first was a large fast food chain. In the old days they would have workers at each restaurant chop the salad – lettuce, tomatoes, etc. As labor costs increased they realized it was more efficient to have all that ‘prep’ done in a central location and then distribute the salad to each of the restaurants. Result: a reduction in overall labor hours.

The second example was a multinational consumer goods company. As finished goods came off the production line they had to be ‘palletized’ – stacked on pallets for transport. In low-wage-rate markets, typically in the third world, that was done manually by laborers. In high-wage-rate markets it made economic sense to purchase an automatic palletizing machine. Result: a reduction in labor hours.

These examples aren’t specific to minimum wage. They do reflect the way decisions are made, however, based on the level of wages.

Aug 1 2007 at 12:22am

Whatever the proponents of Minimum-wage are trying to maximize, it’s still a highly regressive piece of legislation. It takes from some poor people (those who get the boot) to give to some other poor people. How can any good-hearted person stand for that??

It’s clear that the lobby behind Minimum-wage sees this as a first step towards laws that make it harder to fire (European style). On the other hand, I only recently realized that this law comes attached with a myriad of exceptions (this business, not that business) and tax-breaks. So there might be a bit of Baptist-Bootleggers dynamics going on as well.

Jeremy McKibben
Aug 1 2007 at 2:06am

Here are some other links and readings you might want to add.

Robert Whaples also surveyed the American Economic Association and found similar results:

In EconLog Bryan Caplan wrote a brief note on the minimum wage petition, where he points out that only 5 out of possibly 35 Nobel economists signed the petition.

For a really good read on Card and Krueger’s work on minimum wages check out the Symposium Review of Myth and Measurement, in vol. 38 no. 4 of Industrial and Labor Relations Review.

Brad Hutchings
Aug 1 2007 at 3:13pm

muirgeo… I guess it depends on how you see your enterprise. I have seen small companies that tried to be equitable lose good people because the teams punted when it came to opportunity. If you’re office could pick up a hot young doctor with niche skills in high demand, and offering a high base salary would give the office a multiple ROI, do you hire him at the salary he needs if it throws equity out of balance?

If you’re offering your employees equity in the business and you don’t bring that star on board or run the business with the intent of enhancing its value, expect your most valuable employees to leave for pastures where owners want to make them richer. Equity is only a good deal for the low end contributors.

Aug 1 2007 at 9:15pm

Thanks heaps for another terrific podcast!

I like the point made in the podcast: that the disagreement between economists is caused by conflicting values not disagreement over fundamental principles.

Surely everyone agrees that cost of labour has an affect on the supply – nevertheless the minimum wage still receives support. But are we questioning whether a minimum wage reduces employment, or are we arguing whether a minimum wage reduces social equality?

In the words of R.M Hare: “If we are arguing about some moral question…, one of things we have to get clear about at the beginning is what the question is”.

Perhaps it’s worth considering a podcast that does investigate the arguments for a minimum wage. You could do it in the style of the ‘Ticket Prices and Scalping’ podcast, interviewing union representatives, workers etc.

These arguments will need to be considered if we all are to reach an agreement on whether a minimum wage is “good” or “bad”. If we cannot reach an agreement through analysis, it must be that we lack convincing data or that we have fundamentally opposing values.

I’m looking forward to next week’s with Hanushek, really enjoyed his last podcast.

Aug 3 2007 at 2:52pm

I believe there is an unfair comment against Krugman in the podcast. If i remember it correctly, it mentions that Krugman said that if money is moved from the rich to the poor the poor becomes richer (something like that). It then goes on to say that Krugman is arguing that the economy is a zero-sum game. This is not the case, if I remember Krugman’s remarks correctly (unless, of course, we are talking about different articles here). I think he was discussing inequality, and mentioning the fact that, if a larger SHARE of national income is now held by the top 1%, A SMALLER SHARE of it is in the hands of the bottom 99%, which is true (the “share game” is, in fact, a zero sum game). He is not arguing that the bottom 10% became poorer, in absolute terms.

Of course, one may think that inequality is irrelevant (I don’t), but that is another matter.

Russ Roberts
Aug 3 2007 at 3:53pm


If you scroll up to the top of the page, you’ll find links related to the podcast including the Krugman article and the actual quote. Here’s the quote:

“Although America has higher per capita income than other advanced countries, it turns out that that’s mainly because our rich are much richer. And here’s a radical thought: if the rich get more, that leaves less for everyone else…. That statement—which is simply a matter of arithmetic—is guaranteed to bring accusations of ‘class warfare.’ “

Aug 3 2007 at 4:34pm

Russ, this is not the quote I had in mind, and I don’t have Times Select access. Still, judging from your quote, I believe it is about the same thing I was talking about, isn’t it? He is saying that the share of the rich is much higher in America than in other countries (thus implying that the share of the poor is smaller). Again, while the market is not a zero-sum game, the “struggle for shares” of national income is.

Of course, I may be reading it wrong. Anyway, if he means what I am saying, it is kind of trivial. If he means what you are saying, it is kind of silly.

By the way, it should be obvious that one can be against the “zero-sum” vision of the market (as I believe one should) and still favour a reduction of inequality: we may wish that newly created wealth goes disproportionally to the poor (while the rich still gets richer in absolute terms).

Russ Roberts
Aug 3 2007 at 5:12pm


I agree there’s some wiggle room on whether Krugman meant shares or absolute level. But the first part of the quote talks about per-capita income. So I presume he meant levels rather than shares. And yes, I agree with your closing point which was a common theme of this podcast–you can admit that demand slopes downward and still favor a minimum wage. But to argue that a binding minimum wage is costless is a strange argument for an economist to make.

Aug 4 2007 at 8:05am

Hi, Celso.

You commented:

and I don’t have Times Select access….

The Krugman article is reprinted (in violation of copyright) all over the web. EconTalk didn’t want to link officially to any of the illicit versions, but in the interest of your not being handicapped in your interesting discussion with Russ, you can find them easily by searching Google for the keywords krugman for richer.

Deconstructing what Krugman said or intended is actually not as stimulating as the above discussion!

Ken Willis
Aug 5 2007 at 10:19am

Whether Krugman is talking about absolute levels or shares, he is simply wrong (as usual) that the “rich” in the U.S. have either a greater share or greater absolute level than in any other country.

One need look no further than to the South. The gap between rich and poor in Mexico would really disturb Krugman and his ilk, if they actually cared about such things. But they don’t give a hoot about that. Class warfare is simply a means to an end and the end is more government and higher taxes.

Why is anything written by Paul Krugman of any interest to a real economist? Why is his article even cited here?

Muirgeo: Who is working in a doctor’s office for the minimum wage?

Comments are closed.


About this week's guest:

About ideas and people mentioned in this podcast:Books:


      • "Consensus Among Economists: Revisited", by Dan Fuller and Doris Geide-Stevenson. Fall 2000 survey of American Economic Association members. "We updated a line of research that began in 1976 with a survey of economists by Kearl et al. (1979), subsequently extended by Alston, Kearl, and Vaughan (1992a, 1992b)."
      • "Monetarism", by Allan H. Meltzer. Concise Encyclopedia of Economics.
      • "Business Cycles", by Christina D. Romer. Concise Encyclopedia of Economics.
      • "Economic Growth", by Paul M. Romer. Concise Encyclopedia of Economics.
      • "Unemployment", by Lawrence H. Summers. Concise Encyclopedia of Economics.
      • "Robert Solow". Biography in the Concise Encyclopedia of Economics.
      • "Fear of Offshoring," by Alan S. Blinder. December 16, 2005.
      • "Free Trade," by Alan S. Blinder. Concise Encyclopedia of Economics.
      • "Information", by Joseph E. Stiglitz. Concise Encyclopedia of Economics.
      • "Public Schools", by John E. Chubb. Concise Encyclopedia of Economics.
      • "Chairmen of the Council of Economic Advisers (CEA)". Concise Encyclopedia of Economics.
      • "For Richer", by Paul Krugman. New York Times, Sunday Magazine, October 20, 2002. Subscription required. "Although America has higher per capita income than other advanced countries, it turns out that that's mainly because our rich are much richer. And here's a radical thought: if the rich get more, that leaves less for everyone else.... That statement—which is simply a matter of arithmetic—is guaranteed to bring accusations of 'class warfare.' "
      • "Terminatorcare," by David R. Henderson. Wall Street Journal, OpinionJournal, January 10, 2007.

Web Pages:

Podcasts and Blogs:



Podcast Episode Highlights
0:36Intro. 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.
12:21Micro: 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.
20:46Maybe 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?
25:59Trade. 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.
30:27Revised 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.
37:30Is 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.
45:30Economists 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.