The Views of Economists and Non Economists On The Economy (Repost I)

In a previous post, “Economists as Experts (Repost I),” I stated that economists deserve respect as experts on economics, and that common accusations about their objectivity were wrong. In this post, I describe how the views of economists differ systematically from non economists. As in my previous post, I rely heavily on Bryan Caplan’s book, The Myth of the Rational Voter: Why Democracies Choose Bad Policies. His work is based on a survey on 1,510 randomly selected Americans and 250 Ph.D. economists that was conducted by the Washington Post, Kaiser Family Foundation, and Harvard University in 1996. The survey had thirty seven questions about the state of the economy and how it functioned.

Claiming that economists are nonbiased experts and that their opinions are the best representation of reality, Caplan compares their views to the public’s, and finds that they differ in four areas that he calls public biases. The first, antimarket bias, is the tendency to underestimate the effectiveness and benefits of the market mechanism. Caplan writes,

Economists across the political spectrum criticize anitmarket bias. Liberal Democratic economists echo and amplify Schumpeter’s theme. Charles Schultze, head of Jimmy Carter’s Council of Economic Advisors, proclaims, ‘Harnessing the ‘base’ motive of material self-interest to promote the common good is perhaps the most important social invention mankind has yet achieved.’ But politicians and voters fail to appreciate this invention.

Schultze is not the first economist who supported liberal political agendas to speak to the strengths of markets. In fact, I have difficulty using the political term liberal to define economists and do so with some caution. In this post, I will only call an economist liberal if he or she is a self proclaimed liberal, or supported Obama over McCain in the last election. One such economist is Nobel Laureate (1970) Paul Samuelson who penned these words in a SpiegelOnline article titled, “The Dynamic Moving Center,”

Based on my observations of economic history, both short run and long run, I believe that there is no satisfactory alternative to market systems as a way of organizing both economically poor and economically rich populations.

Also for SpiegelOnline, Edmund Phelps, a Nobel Laureate (2006) writes in a article titled, “What Has Gone Wrong Up Until Now,”

It is preposterous to speak, as some Europeans have, of the "end of capitalism." A good life requires a rewarding workplace -- one of change and challenge -- and that requires some sort of well-functioning capitalism.

Economists recognize greater strengths in markets than does the public in general.[1]

The public also expresses antiforeign bias, a tendency to underestimate the benefits of economic interchange with foreigners. As examples of the differences between economists and the public at large, economists express less concern about outsourcing of jobs and immigration. They also overwhelmingly support policies that lower restrictions on trade.

The general public is also more likely to underestimate the benefits of conserving labor, what Caplan calls the make-work bias. Economists generally favor the introduction of labor saving technology. It allows more of a good to be produced with the same amount of labor, freeing that labor to produce other things. Technological advance in agriculture freed 17 million workers as yields per acre increased. Displaced workers retrained, found new jobs, and produced other things. It might have been difficult to see how the displaced farmers and farm workers would benefit from increasing agricultural productivity, but most did, and certainly the country prospered. Economists measure progress within an industry and in the country by increasing productivity, not by employment numbers. Job creation tends to expand to cover all who wish to work, and flows to areas in which it is most highly valued.

Finally, Caplan argues that non economists suffer from pessimistic bias, the tendency to overestimate the severity of economic problems and underestimate the past, present, and probable future performance of the economy. As a demonstration of the optimism of economists, Brad DeLong writes in the abstract of his paper, “Cornucopia: Increasing Wealth in the Twentieth Century,”

There is one central fact about the economic history of the twentieth century: above all, the century just past has been the century of increasing material wealth and economic productivity. No previous era and no previous economy has seen material wealth and productive potential grow at such a pace. The bulk of America’s population today achieves standards of material comfort and capabilities that were beyond the reach of even the richest of previous centuries. Even lower middle-class households in relatively poor countries have today material standards of living that would make them, in many respects, the envy of the powerful and lordly of past centuries.

As experts in economics, economists have studied economic progress, see its incredible advance over the last century, understand some of its causes, and extrapolate that success into the future.[2]

[1] To be sure, “liberal” economists will speak more about the limits of markets because of imperfections such as asymmetry of information, externalities, public goods, or market power than “libertarian” economists like Milton Friedman, just follow the link on Samuelson’s article as an example, but they both recognize the same flaws as well as the same strengths.

[2] At the risk of repeating a common theme of other posts, one of the disconcerting features of the debate about the current recession is the level of pessimism expressed about the outlook for the U.S. economy in the near term.