Do Economists Agree about Microeconomics ?

Robert Waldmann

Arnold Kling (via Matt Yglesias) argues that economists agree more about microeconomics than about macroeconomics.

My take on this is that the consensus of economists is likely to be more reliable on microeconomic issues than it is on macroeconomic issues. In my view, fundamental macroeconomic issues are unsettled. It makes sense to have what a Bayesian statistician would call “diffuse priors” and what an ordinary layman would call an open mind. […] What is important to bear in mind is that just because economists cannot settle disputes about macro does not mean that all of economics is bunk or that nowhere is there a reliable consensus in economics. Macroeconomics is only one area of economics. In my view, it is the area with the highest ratio of unresolved issues to settled questions.

Yglesias proposes a thought experiment

I think that if the President got an ideologically diverse group of economists together and said “I’m going to impose a $800 billion stimulus package through some mystical process that doesn’t involve the need for congressional approval; I want to maximize short-term GDP boost per dollar spent and minimize long-term harm due to budget deficits, what should I do?” that you’d find some important areas of common ground. Not universal, immediate consensus. But I think important common ground and ideas that would be importantly different from what you’d get by pulling an ideologically diverse group of members of the U.S. House of Representatives together


Sad to say, I think that Yglesias and Kling are wrong. Consider your thought experiment and Kling himself. His proposed stimulus would be a payroll tax holidy. N. Gregory Mankiw is more famous and he agrees. It is just not true that conditional on the size of the stimulus, economists agree on spending vs tax cuts.

More generally economists strongly disagree about the minimum wage (now that’s micro) the proper progressivity of taxes and, well, all about regulation.

As far as I can tell, there is a near consensus in favor of free trade, because the people who are sure that protection is bad for the protecting countries ally with the people who care more about the third world than the USA. I don’t actually know an economist who supports rent control. Economists used to agree that the minimum wage was a bad way to try to support the income of the working poor (EITC much better) then some data misbehaved.

Aside from that, I can’t think of much agreement, that is many issues where the range of views of economists isn’t at least as wide as the range of views of the general public. Examples of surprising disagreement after the jump.

update: pulled back from comments
Jeff H. says:
Today, 4:12:13 AM
“Some actual data might be helpful:

update II: from e-mail. Ken Houghton sent me a power point presentation of a newer survey of AEA members with a much larger sample size. I don’t know if the *.ppt is public domain or confidential, but I have to report one result.

66% of the economists surveyed said they planned to vote for Obama. By Mankiw’s definition of “consensus” there was a consensus among economists that Obama would make a better president than McCain.

I comment after the jump.

The micro debate includes the extremely eminent and empirically grounded Alan Krueger and David Card who estimate that, if anything, the minimum wage causes increased employment and many economists who say they must have done something like fudging the data (no specific accusations, I don’t remember names and I wouldn’t type them if I did as casually tossing around such innuendos is unprofessional to say the least).

Economists disagree on whether civil rights legislation caused a reduction in the Black White earnings differential. The very eminent Finis Welch left an AEA panel without listening to a paper by the to be Nobel Laureate James Heckman purporting to prove that it did (I think he had to catch a plane but you know he made the reservation).

Economists disagree about whether or not mandatory seat belt laws cause more traffic deaths. The idea that they do does not come from some wingnut welfare think tank, it comes from the University of Chicago where full professor Sam Peltzman makes the argument.

I think that Kling guesses that all econmists views on micro are close to libertarian for the same reason that he asserted that all right of center economists opposed the stimulus.

He’s at Cato and his view of the economics profession is based on the economists he knows. They aren’t typical.

Update: I think I am wrong on the origin of Kling’s beliefs. Via Jeff H in comments via Mankiw, I find that Kling told mankiw about this survey.

Reading the results, I find an area of consensus which I had forgotten — economists overwhelmingly oppose agricultural subsidies.

The evidence in the survey is strikingly weak. The main problem is that the sample size (which varies by question) is at most 83. That’s a small sample. The original survey was of 210 members of the AEA. That’s a low response rate. Like the author of the article based on the survey, Robert Whaples, Mankiw and Kling count 67% saying yes as a consensus. This is not what I mean by the word consensus. He didn’t ask say “Monetary policy is generally a better way to stabilize output than fiscal policy” (I’d guess more than 67% would have said yes including Krugman who has done so very explicitly) or “The FED should attempt to stabilize both output and prices” vs “the FED should ignore prices and try to stabilize output” or “the FED should just try to stabilize prices (as in the charter of the European Central Bank)” I’d guess that stabilize both would probably get 67%.

I am going to cut and paste Mankiw’s summary of Whaples’ results (note he selected areas of relative consensus and mentioned just one area of disagreement — the minimum wage).

* 87.5 percent agree that “the U.S. should eliminate remaining tariffs and other barriers to trade.”
* 85.2 percent agree that “the U.S. should eliminate agricultural subsidies.”
* 85.3 percent agree that “the gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged.”
* 77.2 percent agree that “the best way to deal with Social Security’s long-term funding gap is to increase the normal retirement age.”
* 67.1 percent agree that “parents should be given educational vouchers which can be used at government-run or privately-run schools.”
* 65.0 percent agree that “the U.S. should increase energy taxes.”

And, finally, the topic that generates the most consensus:

* 90.1 percent disagree with the position that “the U.S. should restrict employers from outsourcing work to foreign countries.”

I find myself in the minority on several issues where Whaples detects a consensus (using such a broad definition). Most economists support vouchers (although I wouldn’t call 67.1% a consensus). My interpretation of the data is that vouchers don’t work. In particular, I wonder if the economists have considered the problem of private schools set up in response to the profit opportunity created by vouchers. Do they really trust such schools ? Would they support vouchers if the alternative were charter schools ?

The 85% who are confident that there is a social security funding gap seems odd given the perfect performance of the trustees low cost estimate and the fact that it implies that there is no shortfall. Here the views of economists seem similar to those of the general public (and to the consensus of pundits). I wonder if economists who have actually looked at the data are so convinced. I’d say the definite statement (no “probably” or “might” so to agree one should be 100% certain of the prediction) is inconsistent with available analysis of actual data.

Mankiw notes that

* 77.2 percent agree that “the best way to deal with Social Security’s long-term funding gap is to increase the normal retirement age.”

he doesn’t note that 57.1% also agree that “the best way to deal with Social Security’s long-term funding gap is to decrease social security benefits.”

Either 32.3 % of the economists in the survey think that the two approaches are identically good or they don’t know what “best” means. The only other alternative was increase payroll taxes. The survey didn’t ask economists about raising the ceiling — the approach which has by far the most support among the general public.

I’d say the survey shows that there isn’t consensus on anything (I’d say consensus implies at least 83 out of 83 but really you need unanimity in a larger sample before you have consensus).

Imagine what would happen if you asked biologists if the human genetic material is DNA ? or if genes are objects with a mass and a location ? Or if they believe in evolution by natural selection (or stronger if they think that the current forms and diversity of living things is due to evolution by natural selection).

update II: see update II before the jump. Note that according to Mankiw there is a consensus in the economics profession that Obama not McCain should be President. For what it’s worth (nothing given sample sizes) that is larger than the proportion who support Mankiw’s favorite idea — energy taxes.

Also I should have mentioned this in update I, but, you know, not all economists are Americans. A consensus in the profession doesn’t mean a consensus in the AEA. I’d say there would be very different answers on vouchers and US social security in Europe (you would have to tell them the retirement age and the benefit level, Then prove that the maximum benefit level is really that low with an official document because they wouldn’t believe you.

You know, I bet if you asked the economists in Whaples sample what social security should pay min max and average they would probably come up with numbers higher than current pensions. Many would know exactly what current pension levels are, but I guess that the others would have biased up guesses. That is, I suspect, that economists, like the general public, support cutting something to a level higher than its current level.

On the general public one clear result of polling is that most US citizens want to cut foreign aid. When asked for numbers they said from 10% of the federal budget to 5%. Foreign aid is currently about 1% of the federal budget so the respondents wanted to cut it to five times the current level.

Of course, economists know more about the federal budget than the general public, but that leaves plenty of room for policy proposals based on ignorance of current policy.