Unformatted text preview: CHAPTER 2 ECONOMIC MODELS: TRADE-OFFS AND TRADE 39 example, the proposition that rent controls lead to housing
shortages—reporters and editors are likely to conclude that
there is no story worth covering. and so the professional con-
sensus tends to go unreported. But when there is some issue
on which prominent economists take opposing sides on the
same issue—for example. whether cutting taxes right now
would help the economy—that does make a good news story.
So you hear much more about the areas of disagreement with-
in economics than you do about the large areas of agreement. It is also worth remembering that economics is. unavoidably.
often tied up in politics. On a number of issues powerful inter-
est groups know what opinions they want to hear: they therefore
have an incentive to ﬁnd and promote economists who profess
those opinions, giving these economists a prominence and visi-
bility out of proportion to their support among their colleagues. But although the appearance of disagreement among econo-
mists exceeds the reality. it remains true that economists often
do disagree about important things. For example. some very respected economists argue
vehemently that the U.S. government should replace the income tax with a value-added
tax (a national sales tax, which is the main source of government revenue in many
European countries). Other equally respected economists disagree. Why this difference
of opinion? One important source of differences is in values: as in any diverse group of individ-
uals, reasonable people can differ. In comparison to an income tax. a value-added tax
typically falls more heavily on people of modest means. So an economist who values a
society with more social and income equality for its own sake will tend to oppose a
value-added tax. An economist with different values will be less likely to oppose it. A second important source of differences arises from economic modeling. Because
economists base their conclusions on models. which are simpliﬁed representations of
reality. two economists can legitimately disagree about which simpliﬁcations are
appropriate—and therefore arrive at different conclusions. Suppose that the U.S. government was considering introducing a value-added tax.
Economist A may rely on a model that focuses on the administrative costs of tax sys-
tems—that is, the costs of monitoring. processing papers, collecting the tax, and so on.
This economist might then point to the well-known high costs of administering a value-
added tax and argue against the change. But economist B may think that the right way
to approach the question is to ignore the administrative costs and focus on how the pro-
posed law would change savings behavior. This economist might point to studies suggest-
ing that value-added taxes promote higher consumer saving. a desirable result F 0 R I N u U I R I N G M I N D S .....- . |lr'rl'hen Economists Agree lo‘.
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Sh'h DIC.'\'|'E.J\L nzhrsr ”If all the economists in the world were laid end to end. they still couldn't reach a
: conclusion.” So goes one popular
economist joke. But do economists really
disagree that much? Not according to a classic survey of : members of the American Economic
Association, reported in the May 1992
issue of the American Economic Review.
The authors asked respondents to agree or
disagree with a number of statements about the economy; what they found was
a high level of agreement among profes-
sional economists on many of the state-
ments. At the top, with more than 90
percent of the economists agreeing, were
”Tariffs and import quotas usually reduce
general economic welfare" and ”A ceiling
on rents reduces the quantity and quality
of housing available." What’s striking
about these two statements is that many
noneconomists disagree: tariffs and import quotas to keep out foreign-produced goods
are favored by many voters, and proposals
to do away with rent control in cities like
New York and San Francisco have met
ﬁerce political opposition. So is the stereotype of quarreling
economists a myth? Not entirely:
economists do disagree quite a lot on
some issues, especially in macroeconomics.
But there is a large area of common ground.
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- Spring '08