Scott Sumner  

When ideologies change

Gary Becker, A Reminiscence... The Great Grandson Also Rises...

Over the past 5 years I've done a number of posts discussing a strange phenomenon. My views on money/macro are in many respects quite close to the consensus view of 2007:

1. Fiscal stimulus is ineffective.
2. Monetary stimulus can be highly effective at the zero bound.
3. Low interest rates and a fast rising monetary base do not imply "easy money."

And yet by early 2009 my views were widely regarded as heterodox, even bizarre. Of course when new facts appear it is natural (even healthy) for people to change their minds. However I was unable to find any sort of new facts that would justify this sort of radical change in macroeconomics. When I talked to people they tended to cite new "facts" which were not accurate. Thus I assumed they were simply making a mistake. And that's still what I am included to believe.

But now I'm seeing another huge area of changing worldviews--inequality. And in this case the "mistake theory" seems less adequate, although I continue to believe it's a part of the story.

After listening to a long interview with Larry Summers, I wrote a post listing some areas where I disagreed:

6. He thinks capital income should be taxed more heavily. I oppose all taxes on capital income.

7. He thinks growing inequality is a major issue in the modern world. I see growing equality as the most important trend since 1980.

Then I saw Tyler Cowen link to a 2005 post with this interesting nugget:

5. Larry Summers did the best empirical work on how abolishing capital income taxation would boost living standards.
Lots of progressives have shifted their views on capital taxation. But it's striking to see such a large shift from someone Tyler Cowen cited as the leading advocate of not taxing capital. Now let's consider this shift in a broader context. In what other related areas have the left shifted their views? One obvious answer is the minimum wage. On the other hand, as far as I know there has been no significant shift on rent control. I don't recall any well-known economists advocating an extension of NYC-style rent controls across the country. What are we to make of this pattern? I see three possibilities, all of which are probably partly true:

Receptivity: Progressives are more receptive to policy proposals aimed at reducing inequality, because they see inequality as an increasingly serious problem.

But that doesn't seem adequate, as the original view was that higher minimum wages don't actually help the people they are designed to help. So we need more than receptivity.

New Information: There might be new academic studies that change opinions. Card and Krueger did a study of minimum wage laws in New Jersey and Pennsylvania that found little impact.

On the other hand, the policy views of economists are rarely impacted by academic studies. More often, they say; "I just don't believe that result" when it differs from their prior beliefs and/or theoretical assumptions. And they often have good reason for doing so---most empirical results are not very robust. Bryan Caplan gave very good reasons for being skeptical of the revisionist work on minimum wages.

Cognitive illusions: In all of the cases discussed: monetary policy, fiscal policy, taxation of capital, minimum wages, etc., it seems as though opinion has migrated away from the sort of counterintuitive views often held by economists and toward the more "common sense" views held by the man on the street. Even many Republicans favor a higher minimum wage rate. Inequality has powerful "framing effects."

I happen to think all three factors are important. Many people are very cynical, and believe the only explanation you need is corruption--special interest politics. That certainly may work for politicians, but at the risk of appearing naive I simply don't buy it as an explanation for academics. I see no reason to assume that other academics are more corrupt than I am, and will not change that view without persuasive evidence.

By the way, you also see ideologies changing on the right. There seems to be more opposition to immigration that in the past. In the Reagan era conservatives seemed to view free markets in labor in much the same way they viewed free markets in goods. Now concern over cultural change associated with high levels of non-European immigration seems to have made American conservatism somewhat more xenophobic, albeit not as much so as in Europe.

Perhaps the new egalitarianism will end up like the old Keynesianism. The parts of Keynes's message that were consistent with progressive macro thought in the 1920s, have survived in the form of New Keynesianism. The more distinctive portions of the General Theory tended to fade away, as those ideas were overly influenced by the powerful "framing effects" of the Great Depression (until being revived in the wake of the almost as powerful framing effects of the Great Recession.)

Maybe it's wishful thinking on my part, but I believe that the Larry Summers of 2005 will have a much more lasting influence than the Larry Summers of 2014.

The left is moving left. But the left is most likely to be right when it is right. Just as the right is most likely to be right when it is left. Or something like that.

Comments and Sharing

CATEGORIES: Labor Market , Taxation

COMMENTS (19 to date)
Thomas Sewell writes:

It's difficult to be fashionable if you don't follow the latest fads.

For those with the "in" crowd academically and in the media/government, the biggest sacrifice is likely to be the rationalization away of their former scientific opinions in order to be on the "proper" side of history.

One of the big strengths of the left in the U.S. is that to really be a part of it, you have to agree to accept (or at least espouse) the whole package of beliefs. Once you do that, you're "safe".

It can also be a weakness when the whole left bets on a particular thing that is flat out wrong.

One of the strengths of the right in the U.S. is that as long as you agree on a few basic principles, you're free to disagree/argue about the rest. It makes for a stronger intellectual tradition and more of a probability of being correct, or at least well-tested in your arguments.

It can also be a weakness when trying to organize the whole right about something that only a portion of it accept.

Not to imply there is a real comparison between us, but I have my preferences for which model to be a part of and Larry Summers has his.

Chris H writes:

This seems like it could be a related idea to this blog post I encountered fairly recently.

Now the post in the above link is rather long (but I think also good), but the TL;DR version is politics can be equated to fashion insofar as there seems to be people attempting to avoid being associated with politically interested people they consider to be one level below them in understanding/knowledge, indifferent to anyone more than one level below them (as there's little chance a person will be mistaken for being such a political "low life"), and attempting to emulate those one step above them (any more than one level above and any attempt to try to pretend to be that group will assuredly fail). What this means is the popularity of beliefs will tend to shift as people at the top of the political fashion pole shift to try to avoid seeming like the people just below them, while those people try to keep up with whatever the top is doing and avoid those below them and so on all the way down.

Some beliefs seem to stay stable for a long time and some seem to spread rapidly to pretty much everyone so it's clearly a simplified model, but one that probably explains pretty well shifts in rhetorical emphasis (from the neo-liberal 80s and 90s to the more statist rhetoric of the 00s and 10s perhaps being an example).

With luck, each swing from one way to another is hopefully shifting politics closer to truth, but I'm not particularly confident about that.

Harold Cockerill writes:

I think it's a case of the party in power needs to change the subject. For the most part what they've done hasn't worked and they did it mostly with a bunch of borrowed money. That can't lead to a good end.

They had to find a new boogeyman and inequality fit the bill. Raise the minimum wage and enact a slew of new regulations to fix the new problem. It will actually make the economy less efficient and lower productivity. For the most part the media will cover for them.

Andrew writes:

Or we could agree that some economists are responding to the incentives available to them to feed the beast of government.

brendan writes:

Scott's right, corruption doesn't explain the shift.

Stress causes people to place more weight on their intuitions than their slow analytic judgments. The intuitions of economists will tend to be more extreme than their analysis-based policy prescriptions. Bad recessions thus polarize.

But new info is a part of it too. I'm increasingly "xenophobic" because much bad stuff has happened since 2008 in the racial realm.

In good times one might be rational enough to recognize that, for example, the badness of the incessant demonizing of Privileged White Men is less important than the goodness of all Caplan's utilitarian arguments for immigration.

Just as a leftist might recognize that the goodness of global poverty reduction exceeds the badness of increased intra-country inequality in the West.

So bad times means more intuition based processing of new info.

Mike Rulle writes:

This essay is really good---like an outline for "a nature of man and politics" book good.

A few random comments.

We are a complex species. We have a remarkable ability to be inconsistent in thoughts an actions. We can be corrupt and good at the same time.

Sometimes, it is virtually impossible to believe that intelligent people believe the things they espouse. For example, economic inequality. Economic inequality is always measured by household income quintiles in politics. Not personal income adjusted for transfer payments. I believe the media which reports these numbers are simply uneducated. But can it really be the case that the left which leans heavily on these numbers does not understand this? Maybe they do not, but I really doubt it.

The nature of man as described by Hobbes is very appealing (not his solutions). The concept of a "left" and "right" has been around at least 150 years (I think of 1848 as when left/right in modern era began). The nature of the left's views has been pretty stable---people are getting screwed by people more powerful than them. The "right" has changed. Classical Liberalism is now "right". Power seems to be its own end---(it is not the only thing; but it exists in man as a desired "good").

Corruption is like random residuals in a regression. As a general matter it can be analytically ignored when comparing left and right.

People have different values. That is the way it is. But all "people" can be fooled, at least some of the time. So we get a lot of "ends justifying the means" behavior in politics. I find lies in politics maddening.

The old saw "facts are stubborn things" is not always true---because it is the facts themselves which are always in dispute.They are more in dispute than they should be due to ignorance.

What I believe about inequality is the following.

The more left you go the more equality you get and the more poor everyone is. Cuba is a really excellent example of this in a social science sense. People do not starve, people are educated, almost everyone works, etc. But they are a dissatisfied people because they are limited in what is permitted. They are freedom oppressed.

The more right you go, the more inequality you get but everyone is richer---but the most rich are off the charts rich. In a material world which keeps getting better (materially, not spiritually or morally), the left plays on envy. The right plays on we are all better off.

America has managed to balance these forces pretty well. But I think we are more left than we have ever been, but we have mean reversion in politics.

ThomasH writes:

I have no idea if Larry Summers has changed his views on taxation of capital income. It seems quite possible to me to think that taxation of only progressive consumption is better than income taxation with ad hoc allowances for capital income AND to believe that in a particular political and economic circumstance that higher income taxation including on capital income might at the margin be better than other feasible ways of raising revenue.

Benjamin Cole writes:

Not every belief is rational. Some are matters of faith. The right-wing's obsession with zero inflation and tight money and a strong dollar is...well not self-serving. Even if we grant rentier status to the right wing, the tight money fixation still does not make sense. And it is a newish fixation---in the 1980s Reaganauts wanted looser is strange.

Scott Sumner writes:

Lots of interesting comments, I'll just respond briefly to Mike Rulle.

I agree with much of Mike's comment, although I'm not quite sure how equality correlates with left and right wing policies. Indeed it's not really clear what the phrase "extreme right" means (fascism or libertarianism?) When I hear the phrase "extreme left" I think of Maoist China. Was that an egalitarian place? I'm not quite sure. I suppose in money terms it was, but in many ways it was a very unequal society.

Here's another example. Is Denmark more or less left wing that Italy? It seems to me that Denmark is far more egalitarian (both culturally and economically), but not necessarily more left wing (it depends how you define "left.") Italy seems more socialist to me, for example.

Charlie writes:

Any run ins with Gary Becker at Chicago? Ever take his class?

Sam W writes:

I'm sure someone will be along to correct me if I'm off base here but my understanding was that the previous consensus had been that, in line with econ 101 theory, minimum wage hurt low skilled workers as a class, while benefiting the few workers who kept their job despite the shift in the labor market. The research in the past few years has shown that, as yet, the effects on the labor market in terms of job creation are either negligible or zero, while the increase in real income is tangible.

Most of the wonky stuff I've read supporting hikes to the minimum wage aren't saying "this is the bestest way ever to help poor people" they're saying "we can't possible get an expansion to the EITC or a basic income/negative income tax passed so this might work as a bandaid and doesn't seem as actively harmful as it did in the past."

Glen Raphael writes:

In the age of Usenet, internet discussion tended to bring out and favor libertarian ways of thinking and arguing. I think that has changed. Tumblr in particular, seems tailor-made to reinforce populist demagoguery. Same thing goes for (to a somewhat lesser degree) Facebook and Twitter.

Arguing FOR a higher minimum wage requires no careful detailed thinking - you can do it with a bumper-sticker type phrase, slap that phrase on a cute image, share the image on facebook, and get a thousand likes/reshares. Or make the argument in 140 characters for a tweet. But arguing AGAINST minimum wage needs an essay. Essays don't accumulate "likes" and reshares as quickly. You can't make an imagememe out of them and you can't fit them in 140 characters.

The winds have shifted. Current intellectual conditions favor the growth of dumber, simpler arguments, so those are the arguments we're starting to see a lot more of.

Glen Raphael writes:

Sam W: Another consideration is the Coasian point that fixing just one term in a contract makes BOTH parties to that contract worse off. Just as rent controls degrade the quality and desirability of housing, wage controls degrade the quality and desirability of jobs. If you think through the logic, even the people who "get a raise" due to minimum wage are on average made worse off by it. They do get paid more but their raise isn't worth what they give up to get it. The higher-paying job is likely to be worse in every other way but pay - less flexibility, less freedom, less training, less job security, less safety, worse working conditions, worse work hours, worse fringe benefits.

And even if none of that were true and the job miraculously became unambiguously better once obtained, the higher-quality job will incentivize more jobseekers to chase after it, leading to an arms race wherein that benefit is competed away - candidates seek extra training on their own, pay under-the-table kickbacks, or jobs are allocated via cronyism, nepotism and cost-free discrimination.

The underlying problem is that an employee who *keeps* their job after the minimum wage is raised is an employee who was producing enough surplus value that she theoretically could have *bargained* for that higher wage before - yet chose *not* to!

So conventional economic analysis says the minimum wage hurts the workers who get fired or reduced hours AND hurts the workers who get a raise. The only people not hurt are those making so much more than the minimum that it doesn't change their wage at all. (Some of those do benefit. Like the Costco workers who have more job security after Walmart is driven out of business by higher wage requirements so Costco has less competition.)

B.B. writes:

"Corruption" in a money sense is rare in academia.

But all people, including notable academics, have a strong urge to join a group, to support their teams, to wave their flags.

So we get Nobel prize winning economists who want much higher minimum wages, with complete dismissal of any impact on employment.

And the literature on optimal taxation appears to have been flushed away.

Krugman and Summers have published about how unemployment compensation can raise the unemployment rate, but we don't here about that any more.

Stiglitz used to write about the pointlessness of the estate tax. No more.

And where are the noble progressive economists in NYC advocating the abolition of rent controls? Do we need Mayor De Blasio building more "affordable" housing, or do economists need to demand we relax zoning laws?

Sam W writes:


The glib response to that complaint would be "stickiness" which is the same reason that the empirical authors are using to just the lack of a measurable distortions due to the raise in minimum wage. Labor standards may or may not fall over time but just like a minimum wage will create a set of expectations about wages (and hence generally raise the wages of middle managers as well as the lowest end) but, just because, for instance, prevailing labor conditions means that workers would tolerate being beaten to keep their job, cultural and company mores would prevent or slow the institutionalization of such a system.

Note I'm not arguing for a raise in the minimum wage, it just doesn't strike me as intellectually dishonest or misguided on the part of progressives , given their priors.

@B.B Yglesias literally never stops talking about zoning laws and he's about as progressive as they come, though you can quibble about economist.

Mike Rulle writes:

Hi Scott---thanks for commenting

I often have trouble defining what right means in an "inter-temporal" sense; or even today across different countries--at least what is often called right in one instance seems to have nothing to do with what is called right in another instance.

I also did not use the phrase extreme right, because I really do not know what it means. Nazi Germany was always called extreme right and Stalin Soviets were called extreme left.

The former's ideology was extremely "nationalist", while the latter's ideology was "internationalist" (e.g., Comintern). Also, Soviets owned means of production (Communist), while Germany controlled the means of production (Socialist). But "Left" and "Right" as opposites here seems silly, as in practice there really was not much difference.

Having said that, my comments focused on economic equality as a political goal in our American context (despite my Cuban reference). By "Left" I meant Government spending and/or redistribution being a larger part of the economy, and by "Right" I meant it being a smaller part of the economy. In this sense, one could say Hong Kong on right (Gini score a high 53) vs. Scandinavians on the left (Gini in the 20s) are kind of prototypes.

I think the Scandinavians are more socialist than HK and US (not saying that is good or bad). HK and US has higher GDP per capita (PPP) than Scandanavians by 40% (but lower nominal by 15%).

Not proof of anything obviously---but partly consistent with hypothesis I was trying to articulate---left (as defined above) leads to less wealth but more equality and right leads to more wealth and inequality---but least rich may be wealthier in "right" countries (again as defined)--just a thought is all.

Fitting ideas into prepackaged words may not be helpful, as I try to do here.

Glen Raphael writes:

@Sam W: "wage stickiness" could work as an explanation for a suboptimal status quo if there were only one firm to choose from and the only way to get a raise was to demand it from your current employer. But in fact there exist lots of employers, all with different margins and different strategies. All the employers are paying approximately what they can afford to pay based on employee productivity, but some pay a bit more and others less in direct salary versus other forms of compensation.

If employees as a group tend to want more salary relative to other stuff they're getting out of a job, employers as a group have an incentive to make that tradeoff. Even if wages are so "sticky" that lobbying for a raise never works, employees can still effectively "negotiate" for more salary merely by switching jobs - every time someone on the margin switches employers they go for the one that offers more salary and less other good stuff. The employers that offer lower wages then have trouble finding workers, until they raise the salaries they offer to new hires. That process produced the mix of jobs and benefits we have today.

In that world, mandating a high salary removes crucial flexibility. The high salary makes it illegal to offer job packages that some - not all, but some - employees would like a lot MORE than what they can get now, so it is making those employees worse off. It probably makes a few better off, but on the whole the losers are bound to outnumber the winners, so the group as a whole is harmed.

The progressives are clearly misguided to believe raising the minimum wage is good for workers who make near the minimum wage. Their claim that that policy could help low-wage workers is just a fig leaf that covers the nastiness behind high-wage union workers forcing low-wage workers to suffer for their improved job security.

Scott Sumner writes:

Charlie, Yes, I took his class, but didn't really know him very well. He was the most brilliant teacher I ever had, and seemed like a very nice guy as well.

Mike, I mostly agree, but I'm not even 100% sure that the Scandinavian countries are more socialist than the US. Denmark scores higher than the US on the Heritage ranking of economic freedom. Of course that ranking might be "wrong" but I'm not really in any position to argue that point. In contrast, I think everyone agrees Cuba is more socialist.

So I agree that there are certain markers that almost everyone agrees on, but after than things get really murky.

Everyone, I agree the minimum wage literature is inconclusive--my own research on the Depression leads me to believe it has some disemployment effect. Perhaps a job quality effect as well.

Floccina writes:

Perhaps the financial crisis and economist's lack of foresight on the crisis shook their confidence in economics.

Comments for this entry have been closed
Return to top