Economists agree on microeconomics, not macroeconomics. The public believes the opposite.


I’ve posted about the awesomeness of economist Scott Sumner before. In particular I find Sumner’s argument that tight Fed policy is the primary cause of the 2008 recession totally convincing. See my take here. But for this post I wanted to cite Sumner on another topic. Sumner has a fun rant where he points out that economists generally agree on microeconomics (individuals, businesses, taxes, supply and demand) but not on macroeconomics (GDP, inflation, employment). And yet the public believes the opposite, resulting in poor public policy.

Let me directly quote Sumner’s list of what people incorrectly think they know about micro topics, versus economists:

1. They don’t care what we think of antitrust cases, they’ve already made up their minds. They don’t care about our views on predatory pricing, they’ve already made up their minds.

2. They don’t care what trade theory tells us. They just know that imports raise the unemployment rate, even when not at the zero bound. Or that low wages are an advantage in trade.

3. They are convinced that a firm will raise prices if its costs rise, but won’t pass lower costs on to consumers. You can use elementary logic, you can point out that this sort of behavior would actually reduce profits, you can argue until you are blue in the face, and it will have no impact.

4. They’ve made up their minds on carbon taxes, or any other taxes. It’s all about who pays.

5. They have made up their minds on product quality regulations. You can talk about the market giving firms and incentive to produce the optimal amount of defects, and it will carry no weight.

6. Labor unions …

I could go on and on. Non-economists couldn’t care less what economists think of micro questions. They think common sense is enough (it’s not) and hence they’ve made up their minds. When they hear our ideas they think we are a bit kooky.

On a personal note I would add rent control, since I used to live in the rent controlled city of San Francisco. You can tell someone rent control has been studied by economists at a theoretical and empirical level for centuries, and explain why rent control is bad for everyone, both rich and poor. But of course you will be ignored at best.

The dynamic here is obvious enough. People have pre-existing “common sense” opinions about microeconomic topics because micro is about everyday things like taxes, prices and rent. Since people already know the answer, economists are ignored. The irony is economists are ignored on the very topics where they have the most to offer. On more abstract macroeconomic topics like GDP and the money supply, economics disagree a lot, but people don’t have opinions. So in those mysterious domains economists can believe and do whatever they want without argument.

I don’t have much to add here. Just enjoyed Sumner’s rant and wanted to pass it along.

PS. Along these lines, the econ blogsphere is debating Larry Summers as the new Fed. Why that’s relevant is Scott Sumner argues in a recent post that Obama not only doesn’t understand microecononmics as above, but really doesn’t grasp economics as a field. In that sense Obama’s like most people. To be clear, on balance I’m a fan. Being president requires a huge breadth of skills. No one can have them all. But man, it’s so clear Obama doesn’t grok the quirky slant to the world economics provides.

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