Arnold Kling  

Bryan's Cover Story in Reason

Free Online Textbook... Economic Growth: Can You Give ...

is here. His topic is the four types of bias that non-economists hold.

He concludes,

Economists have a love-hate relationship with systematic bias. As theorists, they deny its existence. But when they teach, address the public, or wonder what is wrong with the world, they dip into their own private stash of the stuff. On some level, economists not only recognize that systematically biased beliefs exist; they think they have discovered virulent strains in their own backyard.

You can hardly teach economics without bumping into these biases. Students of economics are not blank slates for their teachers to write on. They arrive with strong prejudices. They underestimate the benefits of markets. They underestimate the benefits of dealing with foreigners. They underestimate the benefits of conserving labor. They underestimate the performance of the economy. And in doing all that underestimating, they overestimate both the need for the government to solve these purported problems and the likely efficacy of its solutions.

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CATEGORIES: Economic Education

COMMENTS (4 to date)
eric writes:

I think some biases (beliefs?) are not so peculiar to laymen. Caplan quotes Krugman circa 1996 to show that economists all agree of free trade. I think Krugman circa 2007 has significant qualifications to his belief in free trade. The "make work" bias was a pillar of FDR, and this is still held in pretty good esteem by your average economist as doing something in he face of the Depression (eg, I bet Brad DeLong would say, "well, it could have been done better, but on net...")

Michael Sullivan writes:

I agree with most of the article, but had a quibble with this bit:

In the Third World, of course, the number of employment options is often substantially lower than in developed countries. But if there really were a vast employer conspiracy to hold down wages, the Third World would be an especially profitable place to invest. Query: Does investing your life savings in poor countries seem like a painless way to get rich quick? If not, you at least tacitly accept economists’ sad-but-true theory of Third World poverty: Its workers earn low wages because their productivity is low, due partly to lower skill levels and partly to anti-growth public policies.

I don't think this argument flies. Workers could be exploited by a vast employer conspiracy, but the number available to be exploited at a particular price is limited, or there may be other (political, logistic) limiting factors. If anyone can invest and become part of the exploiters, then competition among potential exploiters will be expected to inflate the price of stock there until extra earnings on capital will approximately balance extra risk relative to rich economies. So with open investment, the initial investors get all the benefit, marginal investors get none. But Brian is asking us here to believe that little benefit for the marginal investor implies little exploitation. This doesn't follow if the investment market is open.

If investment is artificially restricted in some way, then the argument fails earlier -- whatever opportunities the typical investor has in the developing world would not include these rich profits of exploitation. In this case, marginal investors would receive such profits, but you would need the appropriate special access to obtain them. Merely having money to invest would not suffice, so the experience of the typical reader investing in country X is irrelevant.

The actual experience of poor country workers is pretty awful compared to what we experience in the rich world, and the fact that immigrants from these places to the rich can produce a great deal more, indicates that most of the disparity in productivity is institutional. That could be bad government policy, but it could also be different business practices and lack of appropriate investment (practices and investment decisions that are profitable because workers are exploitable).

It's my belief that these folks are exploited, but largely to the extent that money can always be used to control people who are close to the line.

A rich world worker in a decent economy with a years income saved, transferable skills and a good social network has lots of leverage. They can afford to bargain for a fair share of creative surplus, knowing that any loss is recoverable.

If losing (or not getting) a job, means you're probably living on the street, or not eating next week, you'll probably be willing to take some offers that look pretty ugly to those of us who've rarely ever seen such need.

That said, the general point is even stronger. Chinese (and other) workers are almost certainly being exploited to some degree, but the primary beneficiaries (as a group) are not fat capitalists, but rich world consumers. To the extent that foreign workers are being exploited, the discipline of the competitive market means that it's mostly everyday rich world folks who are sucking up those rents.

MT57 writes:

Very good article, enjoyed it a lot, thanks.

Ted Eastes writes:

Economists are great at analyzing Utopian societies, but we all live in a real world of sovereign nations of different cultures and ideals, some with evil people in control. This article misses the mark badly in the real world and I hope and pray that voters maintain their biases in order to stem the will of the globalist elites and their paid proxies in our government.

Many economists and businessmen are oblivious to the need for sovereignty from other nations and thus don't understand that conservation of freedom, culture, capability, capital, and access to natural resources are essential to the sustainment of a sovereign nation of free people. These are the one-world government globalists who see borders as an impediment to profits and their own enrichment and place no value in preservation of freedom, culture, or the existing population of a nation. The author also does not understand the inordinate amount of control the elite class has over the governance and economy of a sovereign nation and how the advent of "free trade" and open borders in our own country have reduced the economic time scales for transition of businesses to foreign shores to months as opposed to years and yet left the economic time scales for affected US workers measured in years and possibly decades (retraining, moving family to a new location, possibly assimilating to a new culture). Unfortunately, the US worker has little understanding of global wage parity and can do little to control work environments that are effectively slavery in other sovereign nations. With the advent of both "free trade" and open borders the US worker has priced himself out of the global market for many jobs. This is partially his own doing as unions have pushed for wages that greatly exceeded those in other sovereign nations. Nonetheless, when his government changed the rules for trade and didn't enforce the borders, the rug was effectively pulled from beneath him. The US worker of this generation may never recover.

Additionally, my own industry (national defense) is an excellent example of an exception to the author's arguments where it is essential that there be limits on free global markets, limits on foreign influence, and possibly use of make-work to maintain capability and thus sustain our nation's sovereignty. I am fortunate on that count in that I will hopefully never face the need to retrain or move my family in order to maintain my status quo. Most other American workers won't have that choice in our current situation of faux free trade and open borders.

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