So you want my opinion?
By Scott Sumner
When people find out that I’m an economist, they often ask me for my opinion on some issue. Unfortunately, they almost always ask the wrong sorts of questions:
1. What do you think will happen to interest rates?
2. Do you think stocks are likely to fall?
3. When will the next recession occur?
Economic theory suggests that economists are unable to answer these questions. Asking me to answer these questions is like asking an astronomer whether June is a good month for a Libra to start a new endeavor. I’m often tempted to respond by saying:
I can’t answer that question, but I can tell you that:
1. We should legalize a market for kidney transplants.
2. We should move toward a policy of free trade.
3. We should stop putting people in prison for drug violations.
4. We should eliminate all rent controls.
5. We should legalize, indeed encourage, price gouging.
And I have hundreds of other suggestions that I’m extremely confident are useful. But I usually hold back, because I’ve learned that people simply don’t care what economists think about these issues. They regard our opinions as being essentially worthless. They have their own opinions on these sorts of questions, and see no reason why our opinions are more valuable than their own policy views.
I once served on a committee for MBA education at Bentley College. There was a discussion of the appropriate coverage of topics in the one semester intro to economics course. The course covers micro and macro, which is difficult to do in a single semester. (The same material is covered over two semesters at the undergrad level.) I suggested that perhaps we should just teach micro, which seems much more relevant to MBAs. The other (non-economist) members of the committee were surprised by my suggestion, as they sort of thought that macro was better for MBAs.
Years later, I figured out what they were really thinking. Micro covers lots of material that is also covered in other business courses, but in a different way. Thus professors of management, marketing, accounting, etc, already have strong opinions on how firms should behave, and think very little of the economists’ perspective on this issue. But they don’t have strong views on macro, which is not really a part of their discipline.
Thus it seems like economists ought to have some really useful things to say about macro, especially macro forecasts, whereas micro seems like something on which anyone could have a reasonably well informed opinion. In fact, it’s nearly the opposite. Macroeconomists do not have very much useful knowledge (especially the real side; we do know what causes hyperinflation.) In contrast, microeconomics has lots of useful things to teach society, but society could not care less as to what we think about legalizing prostitution, or removing barriers to entry into the beautician industry, or relaxing zoning laws in California, or a million other issues.
Tyler Cowen interviewed Jonathan Haidt, who said:
The basic fact about moral argument is that we’re not really listening to each other, we’re not actually open to reasoning. We start with our gut feeling or our partisan loyalty, and at that point we become lawyers. We’re really good at being lawyers and knocking down the other guy’s arguments, and giving them our own.
That’s what economists are up against.
In a post about abortion, Bryan Caplan recently made this observation:
What’s going on? This heated discussion is a special case of a more general pattern of “back alley regulation” that I discussed five years back. Governments strongly prefer to concentrate their coercion on dehumanized “businesses” rather than human beings… even though businesses are, in fact, composed of human beings.
This also applies to drug laws, where for some bizarre reason the penalties for selling drugs are far more severe than the penalties for buying drugs. Economics can help people to see more clearly what’s actually going on—any transaction is two-sided, it’s symmetrical.
When I ask average people about his, they struggle to explain their support for being tougher on drug dealers. One argument is that users are addicted to drugs, and hence are victimized by selfish dealers. But this argument is unpersuasive, as there is no evidence that drug users are any more addicted to the drugs they buy than the dealers are addicted to the money they “buy” when they sell drugs. Indeed the evidence points strongly in the other direction. When I was young, lots of yuppies liked to use cocaine. As they got older, this habit got in the way of their ability to become successful in business or other professions. Most choose money over drugs, as the lure of money is much more powerful.
If we were actually going to use the “addiction” criterion for who we avoid sending to prison, it would make far more sense to imprison the yuppie cocaine users, and give pass to the poor inner city kids desperate to get money by selling drugs. Of course I’m not recommending this policy, but it would at least take the violence out of the drug trade, and hence be less bad than current policy. Instead, affluent drug users go to “rehab” clinics and poor drug sellers go to prison.
Another argument is that drug dealers are more violent than drug users. But they are more violent precisely because we send them to prison. Dealers who legally sell cigarettes and alcohol are generally not violent.
It’s the same with allowing the selling of kidneys, or ending rent controls, or free trade. When I hear the arguments of people who disagree with me, it’s clear that most simply don’t understand the issues. In contrast, even very well-informed people often disagree with me on macro issues, such as NGDP targeting. That’s why I am far more confident of my policy views in microeconomics, even though I am a macroeconomist.