My colleague Bryan Caplan has devoted many years to uncovering how the beliefs of ordinary people differ from the beliefs of economists, even after correcting for economists’ differing incomes and ideologies. In 2004, Caplan
Economic sophistry at its worst!Foreign bias: I suppose only economists benefit from cheap foreign competition. I suppose therefore that everything from the food you eat to the clothes you wear to the car you drive to the gas in your car to the roof over your head at home and at the office, all of it was made or grown with raw materials exclusively produced and manufactured in the USA. Nothing from China or India or Africa or Australia or Europe or anywhere else for that matter. There's an old addage that when goods don't cross borders, armies will. Trade prevents war.
Make work: The road to true prosperity is to take everybody who is unemployed and pay them 100 dollars an hour to dig a hole and fill it back up again.
Markets: And overcharging is price-gouging and undercharging is unfair competition, right? So what is the right price? And who decides it? And if companies do collude, what is to stop somebody else from creating a better product or service and charging a lower price? But you are right: companies do collude. With politicians. And that is called corporatism or fascism. Ideally, businesses (large, small, and everything in-between) should receive no special favors from government.
Pessimistic Bias: You offer a statement without supporting evidence. Would you prefer to get into a DeLorean with a flux capacitor and make a one-way trip to 100 years ago, or to 1000 years ago? If not, than clearly the pessimistic bias is false.
Perhaps Daniel Kaplan's book is missing a 5th bias: the ad-hominum bias. Those who don't understand economics are prone to launch ad-hominum attacks on those who do. As Socrates said, "When the debate is lost, slander becomes the tool of the loser."
I believe people have strong opinions regarding economics because economics involves money, jobs, peoples' livelihoods. And those are highly emotionally-charged subjects. Another reason is because economic theory involves the seen and the unseen. It is easy to see the seen (make-work), but difficult to see the unseen (jobs that would have been created had the money not been taxed away to create government make-work). Often the truth in economics is counter-intuitive. Yet the same can be said about astronomy. It is counter-intuitive to think that the earth revolves around the sun, and not the other way around. After all, if you sit in a chair from sunrise to sunset, you didn't go anywhere, but the sun did! Yet we all accept modern astronomical theory because it is taught to us at an early age. Economic theory is not taught to us at an early age, hence most people's conception of economics is akin to a caveman's conception of astronomy. Once you understand economic theory, the truth is as plain as day. The best summary of economics I've ever encountered is a single sentence by Henry Hazlitt: "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups." All four biases are due to looking only at the short-term deleterious consequences of change on specific groups, without regard to the long term beneficial effects of change on all groups.
Wow, how prescient, and you wrote this in 2006? In 2008 they nearly did collapse world economies and they are about to do it again by trying to balance the budget on the backs of the poor and wage earners.
They really do believe the “raise the minimum wage and unemployment goes up” idea. That is why they are so opposed to letting Obama reduce payroll taxes. If wage earners get more take home income, that is just like raising wages and so it just has to cause more unemployment.
Foreign BiasSince economist, in general, benefit from foreign competition (cheap TVs, cheap food from chile, etc) and they don't get competiton for their jobs, perhpas it is the economists who are biased.
make workthe day computers start teaching econ courses, and economists get laid off, economists will find deep theoretical reasons why technology is bad
Marketsdo you really believe tht companies don't collude ? If you do, I have a bridge in brooklyn i can sell you cheap
Pessimistic Biasis actually correct, in a lot of ways.
Bryan Caplan has found that it is easy to explain people by claiming they are irrational. Easy, but unproductive. It is difficult to find economic answers to questions if one assumes that the agents are acting against their own best interests. I do not claim that economics has all of the answers, but shouldn't we continue to try to explain these phenomona under the assumption of rationality? How about this. In each case, the people making these arguments are acting in their own best interest. Sure, none of these policies are in the long-run interest of the country, but who, outside of university faculty, have the job security that allows them to put the long run (i.e. infinite horizon, overlapping generations, etc.) ahead of the short run. In the short run, politically, most people must fight to make sure the human capital they spent decades accumulating maintains its value. This leads to anti-foreign, make-work, and anti-market bias. The pessimistic bias is defensive. Politically, it is always good to give others the impression you are willing to fight to keep what you have. The best way to convince people of this is to tell them how bad things are. It seems that people are rational (and not biased), but Caplan is urging them to put their own best interests aside and push for programs that will help economic growth and future generations. If they acted accordingly, what economic model would explain that behavior? I think, it is then that we would have to put our economics aside and look for explanations based in irrationality.
Prosperity and economic logic contend with a bit of hysteria and xenophobia: The United States is losing market share in the global economy, and that is not necessarily a bad thing... Ultimately, the decline of economic pre-eminence may be more damagin...
Physicists have more credibility. Physics is a science. The pronouncements of physicists are testable and falsifiable.
Economics as it stands today is little more than an extension and justification of big business. Economics more closely resembles creationism than science. The fact thabt creationists have been maintaining the same line for years does not make them more credible - it does the opposite.
Isn't this perfectly rational Bayesianism? People come to economics with stronger priors than they do to physics. Given that, it seems unsurprising that they update their beliefs more slowly for the former than the latter.
Wells and Flathead, in every economics course I discuss ad naseum differences between simple supply and demand and the real world. You would hear the most about employment in a labor economics course. Friction is a very simple concept, appropriate for a 101 course; it is hardly a exhaustive list of all things wrong with simple physics models.
Professor Hanson: Fair enough. The sign of the change in unemployment from a $2 an hour minimum wage increase isn't an issue that most people care about, compared to the magnitude. As Ezra Klein points out, people care about pronouncements by economists that are going to affect their lives. Perhaps the people who care the most about signs without magnitudes are graduate students working through comparative statics problems...
Who gets more love, economists or physicists? Robin Hanson stamps his foot in frustration at the lack of respect economists receive, in a nicely self-undermining blurb (via Ezra Klein):Consider how differently the public treats physics and economic...
Joel, I am primarily responding to complaints that I misrepresented economists by claiming a consensus that "a minimum wage raises unemployment." For that dispute the sign is the main issue. I did not discuss whether a minimum wage is a good idea or not.
Professor Hanson- even though the petition mentioned did not claim that minimum wages increase employment, it does claim that the effects of the minimum wage on unemployment are likely to be very small to zero. The magnitude is what counts, not the sign. Given enough data, you will discover that almost every relationship is statistically different from 0. However, that does not imply that every relationship is meaningfully different from 0.
This gets back to the idea that an effect that you believe with a high degree of confidence is very small and negative is much better described by "approximately zero" than "negative", though "negative but very small" is the most accurate description.
Jason says: "This is because physics is a science, and economics is not."
I don't see it like that. I see both as sciences. Economics is a social science. There is nothing at all bad about it. Economics provides an important conceptual language that we all must use in order to consider the many tradeoffs society faces. My complaint has long been that individuals use the slighest noisy evidence--or lack thereof--to argue policies. They become prescriptive, instead of descriptive. They are no longer acting as economists. They are acting as policy makers, or ideologists. That is my issue.
I've looked at the issue of minimum wage, for example. The evidence is ambiguous that raising the minimum wage a bit causes any increased unemployment. There is contrary evidence to say that raising the minimum wage is a net positive.
When an individual says otherwise, they are not acting as an economist. They are acting making a moral statement.
Economic sophistry at its worst!Foreign bias: I suppose only economists benefit from cheap foreign competition. I suppose therefore that everything from the food you eat to the clothes you wear to the car you drive to the gas in your car to the roof over your head at home and at the office, all of it was made or grown with raw materials exclusively produced and manufactured in the USA. Nothing from China or India or Africa or Australia or Europe or anywhere else for that matter. There's an old addage that when goods don't cross borders, armies will. Trade prevents war.
Make work: The road to true prosperity is to take everybody who is unemployed and pay them 100 dollars an hour to dig a hole and fill it back up again.
Markets: And overcharging is price-gouging and undercharging is unfair competition, right? So what is the right price? And who decides it? And if companies do collude, what is to stop somebody else from creating a better product or service and charging a lower price? But you are right: companies do collude. With politicians. And that is called corporatism or fascism. Ideally, businesses (large, small, and everything in-between) should receive no special favors from government.
Pessimistic Bias: You offer a statement without supporting evidence. Would you prefer to get into a DeLorean with a flux capacitor and make a one-way trip to 100 years ago, or to 1000 years ago? If not, than clearly the pessimistic bias is false.
Perhaps Daniel Kaplan's book is missing a 5th bias: the ad-hominum bias. Those who don't understand economics are prone to launch ad-hominum attacks on those who do. As Socrates said, "When the debate is lost, slander becomes the tool of the loser."
I believe people have strong opinions regarding economics because economics involves money, jobs, peoples' livelihoods. And those are highly emotionally-charged subjects. Another reason is because economic theory involves the seen and the unseen. It is easy to see the seen (make-work), but difficult to see the unseen (jobs that would have been created had the money not been taxed away to create government make-work). Often the truth in economics is counter-intuitive. Yet the same can be said about astronomy. It is counter-intuitive to think that the earth revolves around the sun, and not the other way around. After all, if you sit in a chair from sunrise to sunset, you didn't go anywhere, but the sun did! Yet we all accept modern astronomical theory because it is taught to us at an early age. Economic theory is not taught to us at an early age, hence most people's conception of economics is akin to a caveman's conception of astronomy. Once you understand economic theory, the truth is as plain as day. The best summary of economics I've ever encountered is a single sentence by Henry Hazlitt: "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups." All four biases are due to looking only at the short-term deleterious consequences of change on specific groups, without regard to the long term beneficial effects of change on all groups.
Wow, how prescient, and you wrote this in 2006? In 2008 they nearly did collapse world economies and they are about to do it again by trying to balance the budget on the backs of the poor and wage earners.
They really do believe the “raise the minimum wage and unemployment goes up” idea. That is why they are so opposed to letting Obama reduce payroll taxes. If wage earners get more take home income, that is just like raising wages and so it just has to cause more unemployment.
Foreign BiasSince economist, in general, benefit from foreign competition (cheap TVs, cheap food from chile, etc) and they don't get competiton for their jobs, perhpas it is the economists who are biased.
make workthe day computers start teaching econ courses, and economists get laid off, economists will find deep theoretical reasons why technology is bad
Marketsdo you really believe tht companies don't collude ? If you do, I have a bridge in brooklyn i can sell you cheap
Pessimistic Biasis actually correct, in a lot of ways.
Bryan Caplan has found that it is easy to explain people by claiming they are irrational. Easy, but unproductive. It is difficult to find economic answers to questions if one assumes that the agents are acting against their own best interests. I do not claim that economics has all of the answers, but shouldn't we continue to try to explain these phenomona under the assumption of rationality? How about this. In each case, the people making these arguments are acting in their own best interest. Sure, none of these policies are in the long-run interest of the country, but who, outside of university faculty, have the job security that allows them to put the long run (i.e. infinite horizon, overlapping generations, etc.) ahead of the short run. In the short run, politically, most people must fight to make sure the human capital they spent decades accumulating maintains its value. This leads to anti-foreign, make-work, and anti-market bias. The pessimistic bias is defensive. Politically, it is always good to give others the impression you are willing to fight to keep what you have. The best way to convince people of this is to tell them how bad things are. It seems that people are rational (and not biased), but Caplan is urging them to put their own best interests aside and push for programs that will help economic growth and future generations. If they acted accordingly, what economic model would explain that behavior? I think, it is then that we would have to put our economics aside and look for explanations based in irrationality.
NYT: "The U.S. Is Losing Market Share. So What?"
Prosperity and economic logic contend with a bit of hysteria and xenophobia: The United States is losing market share in the global economy, and that is not necessarily a bad thing... Ultimately, the decline of economic pre-eminence may be more damagin...
(Crossposted from http://blog.sciam.com/index...
Physicists have more credibility. Physics is a science. The pronouncements of physicists are testable and falsifiable.
Economics as it stands today is little more than an extension and justification of big business. Economics more closely resembles creationism than science. The fact thabt creationists have been maintaining the same line for years does not make them more credible - it does the opposite.
Isn't this perfectly rational Bayesianism? People come to economics with stronger priors than they do to physics. Given that, it seems unsurprising that they update their beliefs more slowly for the former than the latter.
Wells and Flathead, in every economics course I discuss ad naseum differences between simple supply and demand and the real world. You would hear the most about employment in a labor economics course. Friction is a very simple concept, appropriate for a 101 course; it is hardly a exhaustive list of all things wrong with simple physics models.
I'd like to hear professor hanson's response to Flathead.
Professor Hanson: Fair enough. The sign of the change in unemployment from a $2 an hour minimum wage increase isn't an issue that most people care about, compared to the magnitude. As Ezra Klein points out, people care about pronouncements by economists that are going to affect their lives. Perhaps the people who care the most about signs without magnitudes are graduate students working through comparative statics problems...
Economics vs. Physics Love-Off
Who gets more love, economists or physicists? Robin Hanson stamps his foot in frustration at the lack of respect economists receive, in a nicely self-undermining blurb (via Ezra Klein):Consider how differently the public treats physics and economic...
Joel, I am primarily responding to complaints that I misrepresented economists by claiming a consensus that "a minimum wage raises unemployment." For that dispute the sign is the main issue. I did not discuss whether a minimum wage is a good idea or not.
Professor Hanson- even though the petition mentioned did not claim that minimum wages increase employment, it does claim that the effects of the minimum wage on unemployment are likely to be very small to zero. The magnitude is what counts, not the sign. Given enough data, you will discover that almost every relationship is statistically different from 0. However, that does not imply that every relationship is meaningfully different from 0.
This gets back to the idea that an effect that you believe with a high degree of confidence is very small and negative is much better described by "approximately zero" than "negative", though "negative but very small" is the most accurate description.
Jason says: "This is because physics is a science, and economics is not."
I don't see it like that. I see both as sciences. Economics is a social science. There is nothing at all bad about it. Economics provides an important conceptual language that we all must use in order to consider the many tradeoffs society faces. My complaint has long been that individuals use the slighest noisy evidence--or lack thereof--to argue policies. They become prescriptive, instead of descriptive. They are no longer acting as economists. They are acting as policy makers, or ideologists. That is my issue.
I've looked at the issue of minimum wage, for example. The evidence is ambiguous that raising the minimum wage a bit causes any increased unemployment. There is contrary evidence to say that raising the minimum wage is a net positive.
When an individual says otherwise, they are not acting as an economist. They are acting making a moral statement.