Arnold Kling  

Economists' Ideological Blind Spots

PRINT
Roman Frydman and Michael D. G... No Prayer, Sorry...

Tyler Cowen makes up long lists of the blind spots of left-leaning economists and right-leaning economists. If I were asked this question, I would boil my answers down to one suggestion for each.

What I think left-leaning economists should do more:

Look for structural reasons for policy failure, rather than attribute it always to misguided ideology. Consider the implications of imperfect knowledge on the part of government actors. Also, consider that the existence and growth of special interests is at least partly endogenous with respect to policy.

What I wish that right-leaning economists would do more:

Look for structural explanations for the growth of the state, rather than attribute it always to misguided ideology. Consider the implications of urban density. Consider that as the economy becomes more complex, the potential dispersion in wealth due to differences in ability, information, and luck becomes very large, while the ability to overcome such differences with sheer effort probably declines.


Comments and Sharing





TRACKBACKS (1 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/4745
The author at The Liberal Order in a related article titled Sins of the Left and Sins of the Right writes:
    Tyler Cowen enumerates (in two posts, here and here) common mistakes made by both the left and the right with regard to policy issues. Both are well worth reading. I would only add the following, one for each: For the... [Tracked on March 9, 2011 10:06 AM]
COMMENTS (14 to date)

I think that when we do actually consider if economic growth is a cause for greater income inequality we find that the thesis is lacking. In fact, I think there is reason to believe the exact opposite — that income inequality falls. Now, I'm not denying that there are forces which may cause incomes to separate, but on average I think income inequality tends to fall.

It has only been in the past sixty or so years that income inequality has again began to increase. Rather than blaming economic growth, I think we can also look at the bevy of welfare policies which did not exist prior to the 1950s. These labor-oriented welfare policies have surely had a long-run impact on wages; favoring the wages of some over the wages of others, in fact. I don't know enough about the topic, in any case, so it's another one of those "to-be-considered" deals.

However, we know that there is a fundamental scarcity of labor, and we know that in a growing economy there should be competition for labor. It makes sense for nominal wages to rise (even assuming a stable money supply) as firms compete for workers. I believe, although I don't remember where I read this, that employee income rose faster than management income during the 1920s. All the same, in capitalistic economies profits between entrepreneurs should tend to fall, as the opportunity for profit spreads intertemporally (through the different stages of production) and "horizontally" (through the different industries).

I think that the trend we're witnessing now is a product of the labor welfare and corporate welfare state, not of any inherent tendency in capitalism for there to be growing wage inequality (which, just to clarify, I understand should not be conflated with falling real wages).

fundamentalist writes:
as the economy becomes more complex, the potential dispersion in wealth due to differences in ability, information, and luck becomes very large, while the ability to overcome such differences with sheer effort probably declines.

The economy becomes more complex only because the division of labor increases, which should reduce inequality, not increase it.

Differences in ability and information have always been factors in inequality and I don't see how greater complexity makes it more important. Computers and the internet actually reduce the advantage of information.

Greater division of labor is only possible through greater investment in capital equipment, such as computers. Better capital equipment translates into greater productivity and therefore higher wages for workers which reduce inequality.

smintheus writes:

Well, Cowen thinks that liberals also need to spend more time talking about people's ethnicity and IQ in relation to economic policy. Pretty well sums Tyler Cowen up, in my opinion.

Chris T writes:

Differences in ability and information have always been factors in inequality and I don't see how greater complexity makes it more important.

People with higher cognitive ability are better able to handle complexity and more information. As jobs become more complex, the disparity in being able to perform them grows.

Tracy W writes:

Computers and the internet actually reduce the advantage of information.

Not noticeably. The internet may reduce the advantage of data maybe, but not of information. You need to know a fair bit of background knowledge before you can understand new knowledge. See http://www.aft.org/pdfs/americaneducator/spring2000/LookItUpSpring2000.pdf

Take for example the definition of a planet.

a.
Also called major planet. any of the nine large heavenly bodies revolving about the sun and shining by reflected light: mercury, venus, earth, mars, Jupiter, Saturn, uranus, Neptune, or Pluto in the order of their proximity to the sun.
b.
a similar body revolving about a star other than the sun.
c.
(formerly) a celestial body moving in the sky, as distinguished from a fixed star, applied also to the sun and moon.

To understand this definition, you need to know quite a lot of information. Why are they saying "also called major planet"? What's a heavenly body? Why are they saying "a star other than a sun" - I thought a star was the thing that came out at night? What's the difference between a celestial body and a heavenly body? Why do they put an "or" at the end of this list? (And this definition is either outdated as it has Pluto on it, or written by a firm Pluto fan).

If you have to look up all these things separately, you're going to forget what question you were trying to answer in the first place.

Chris,

But as economies become more advanced the means of disseminating this information also becomes more advanced. People, even of the lowest income strata, are many times more informed than they were one hundred years ago.

All the same, given competition for labor, the methods of providing workers with the necessary information to be productive in that line of work has also improved. It's much easier for someone to become an economist today than it was one hundred years ago. Excluding artificial barriers, like licensing monopolies, one could even argue that becoming a doctor today is many times easier than it was one hundred years ago.

There is no growing inequality between professions; in fact, the inequality has been shrinking.

steve writes:

"Excluding artificial barriers, like licensing monopolies, one could even argue that becoming a doctor today is many times easier than it was one hundred years ago."

Read Paul Starr on the history of medicine in the US. You used to be able to attend a few months of a "school', then go practice. Back in the 1800s you needed no formal training.

Steve

j r writes:
Differences in ability and information have always been factors in inequality and I don't see how greater complexity makes it more important. Computers and the internet actually reduce the advantage of information.
The more complex something is, the greater the opportunities for arbitrage. Not everyone is equally capable of taking advantage of those opportunities.

For example, some people can take a computer and use it to program a complex trading algorithm that earns them millions of dollars; other people can take a computer and use it to send email.

Chris T writes:

But as economies become more advanced the means of disseminating this information also becomes more advanced. People, even of the lowest income strata, are many times more informed than they were one hundred years ago.

Tracy W has already touched on this, but having access to information is not the same as being informed. You must also be able to 1) remember the information, 2) know what to do with the information, 3) Be able to consider large amounts of information simultaneously and form complex ideas with it. This is where cognitive ability (which is not synonymous with low income) is important. Access to all the information in the world is useless if you aren't capable of using it.

Steve,

Right. Excluding artificial boundaries.

J r,

I think it's important to remember that we're not saying inequality will be wiped out. Inequality is an inherent characteristic of a society in which all of its members are inherently different, each with different capabilities, but it doesn't stand that this inequality will be made more apparent by economic growth. The trend, in fact, is the opposite, except for the past years, which also coincide with the growth of the American welfare state.

Chris T writes:

My response seems to have been flagged for moderation.

[fixed now--Econlib Ed.]

Chris,

I'm afraid you may be missing the point. Yes, there will always be inequalities in a society where the people are naturally unequal. But, capitalism works to bridge these inequalities and help those disadvantaged to be able to compete on the market.

Capitalism narrows these inequalities, it doesn't extend them.

Chris T writes:

This is about information flows. When the amount of information people have access to is uniformly restricted, the ability to process it is not all that important. Vastly increase the amount of information available, and the people with the most ability to deal with it will benefit disproportionately.

Almost anyone can do low complexity jobs; not everyone can do high complexity jobs.

Ryan Vann writes:

Perhaps I'm operating under a different understanding of complex economies, but it would seem to me complexity would lessen cognitive wage gaps, as a little piece of disparate knowledge can go a long way.

Then I read Chris T's comments, and I have reservations.

Comments for this entry have been closed
Return to top