Saturday, March 12, 2011

Mistakes of Left-Wing and Right-Wing Economists

I have copied a good chunk of the original posts (here and here). You should go to those and browse the comments as well.

Tyler Cowen is the dean of blogging economists – he is the better known and more prolific half of Marginal Revolution. I’m quite sure that everyone who reads economics blogs has read these two posts.

Here’s what he sees as the problems of left-leaning economists (e.g., some that are easy to find on the internet are Paul Krugman, Brad DeLong, Mark Thoma, James Hamilton and Joe Stiglitz – Krugman and Stiglitz are both Nobel Prize winners):

1. Suggesting that money matters in politics far more than the peer-reviewed evidence indicates.

2. Evaluating government spending on a program-by-program basis, rather than viewing the budget as a series of integrated accounts.  Cross check with the phrase "Social Security," or for use to take many discretionary spending cuts off the table.

3. A reluctance to incorporate sophisticated "public choice" theories into the analysis of favored programs. 

4. Sins of omission: there are plenty of bad policies, such as occupational licensing, which fail to come under much attack from the left.  Sometimes this is because the critique would run counter to the narrative of needing more government or needing more regulation.

5. Significantly overestimating the quality of the political economy of an America with more powerful labor unions and underestimating the history of labor unions as racist, corrupt, protectionist, and obstructions to positive change.

6. Overestimating the efficacy of fiscal policy, underestimating the power of monetary policy, and sometimes ignoring or neglecting how the two interact ("the monetary authority moves last").

7. Citing weak versions of structural unemployment theories and dismissing them with a single sentence or graph, while relying on stronger versions of structural theories in other, non-cyclical contexts.

8. Lack of interest in discussing ethnicity and IQ as relevant for social policy, except in preferred contexts.

9. Overly optimistic views of the fiscal positions of state governments.  Since the states don't have the same tax-raising powers that the feds do, and since state government spending is favored, there is a tendency to see these fiscal crises as not so severe, or as caused by mere obstructionists who will not raise taxes to the required levels.

10. A willingness to think that one has "done one's best" in the realm of policy, and to blame subsequent policy failures on Republican implementation, rather than admitting that a policy which cannot be implemented by both political parties is perhaps not a good policy in the first place.

11. Use of a strong moral argument for universal health care coverage, combined with a fairly practical, hard-headed approach to the scope of the mandate, and not realizing the tension between the two.  Failure to indicate where the "bleeding heart" argument actually should stop and at what margins we should (and will) let non-elderly people die, if only stochastically.

12. Implicitly constructing a two-stage moral theory, which first cordons off the sphere of the nation-state (public goods provision, etc.) and then pushing cosmopolitan questions off the agenda in the interests of expanding a social welfare state.  (In fairness, many individuals on the right don't give cosmopolitan considerations even this much consideration, although right-oriented economists tend to be quite cosmopolitan.)

13. What about countries?  Classical liberals are increasingly facing up to the enduring successes of the Nordic nations.  There is not always a similar reckoning with the successes of Chile and Hong Kong and Singapore; often this is a sin of omission.  (Addendum: comment from Matt here.)

14. Reluctance to admit how hard the climate change problem will be to solve, for fear of wrecking any emerging political consensus on taking action.

As someone who was conditioned to be a left-wing economist in my early days, I have suffered from 1-2, and 6-12 in the past — although probably only 8 and 11 in the last 15 years.

Here’s what he sees as the problems of right-leaning economists (e.g., Russ Roberts, Greg Mankiw, Mark Perry, John Taylor, Nobel prize winner Gary Becker are fairly easy to find in blogs or columns):

1. There is excess fear of inflation and hyperinflation in the current economic environment.  Further there is often an excess estimate of the costs of inflation in the two to five percent range.

2. We know much less about the causes and drivers of economic growth than we like to admit, and when pushed on this issue we fall back to citing relatively simple cases with extreme differences, such as East vs. West Germany.

3. Lower taxes don't spur economic development as much as it is often claimed, at least not below the "fifty percent or less of gdp" range.

4. There are many climate change issues of relevance here, not mostly economics, but it seems remiss not to mention them.

5. I'm all for Health Savings Accounts, but unless done on a Singaporean scale, and with lots of forced savings, they're not a health care plan to significantly benefit most Americans.  There is less of a coherent health care plan, coming from this side, than one might like to think.

6. There is already considerable health care cost control embedded in the ACA, most of all for Medicare, and this is not admitted with sufficient frequency.

7. When it comes to the historical determinants of the Industrial Revolution, the Great Divergence, and the like, the importance of state-building in that process is often neglected.

8. The story of steady and significant economic progress for most Americans is accepted too readily.

9. The role of market failure in the recent financial crisis is underestimated.  It is also believed that we can somehow commit to a policy of no future bailouts.  Promoting that myth will make future bailouts more likely.

10. Relying on liability law, whether or not it is a good idea, is not intrinsically more pro-market, more libertarian, or less interventionist.

As a fully-fledged right-wing economist, I acknowledge suffering from 2, 4-5 and 8-10, although liberals would probably identify me as suffering from all of them.

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