Saturday, September 12, 2015

Why Is Macro So Hard – Who Could Have Seen That Coming?

Former student TW sent along a piece from Cato@Liberty. That’s a blog from the libertarian Cato Institute, so your mileage may vary. It’s entitled “Who Could Have Seen That Coming?”

It discusses, snarkily, the all too earnest presentation of news items where the consequences of dumb policies are presented as surprised.

To economists, they usually are not surprises at all.

We talk a lot about unintended or unanticipated consequences around here, but in these cases the consequences were anticipated and even predicted by a lot of people.

The examples come from three news items where the economics would probably be straightforward for an undergraduate with a semester or two of economics:

  • Minimum wage increases are causing the fast food industry to look for ways to automate (price floors on labor will do that)
  • Predicted outcomes from clean energy initiatives aren’t materializing (probably because it was just rent seeking to begin with)
  • The list price of college is more expensive because we offer a lot of financing options to students (which shift demand to the right).

The overwhelming problem is not that people don’t see these things coming – the author documents that. Rather, it’s that people choose not to listen to the people who tell them their pet project won’t work out the way they hoped.

With fresh students every year, it’s always a good idea to bring back this old Hillary Clinton quote (I’m not even picking on her, it’s just representative of her ilk):

"I'm not going to put my lot in with economists." --after being asked by George Stephanopoulos about economists' claims that her gas tax holiday proposal would not bring down gas prices.

I don’t think Stephanopolous is that great either, but at least he respects a point from principles about the incidence of a tax on a specific product.

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