Who's the Real Economist?

Who's the Real Economist?

E-mail debates of newsworthy topics.
Nov. 12 1996 3:30 AM

Who's the Real Economist?

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      First of all, a mea culpa of my own. Ignore Galbraith's coyness: I was the economist who went overboard in supporting Pete Peterson's position on entitlements and demographics. Demographics play a smaller role in Peterson's forecasts, and debatable projections of medical costs a larger one, than I realized when I recently reviewed his book for the New York Times. I broke my own rule that you should always check an argument both with a back-of-the-envelope calculation and by consulting with the real experts, no matter how plausible and reasonable its author sounds. Do as I say and normally do, not as I unfortunately did in this case.
       I make this admission partly out of a general belief that it is better to own up to a mistake than to dig yourself in ever deeper by trying to deny it--although few people seem to follow that practice. (Let me offer Galbraith an opportunity. In his essay on doing economics, his prime example of the closed-mindedness of economists is their failure to pay due attention to Adrian Wood's work, which Galbraith calls a "devastating critique" of standard estimates of the impact of trade on wages. If you actually read Wood's book, however, you discover that the main reason he reports such large numbers is that, on finding that his estimation technique yields more or less the same answers that other researchers have found, he arbitrarily multiplies his own results by four. Will Galbraith concede that he has given excessive credence to an alarmist position, and, moreover, that he has done his colleagues a considerable injustice?)
       But I also want to eliminate the coyness because I refuse to accept the ground rule that we should not name names. I'll explain why in a minute. Anyway, Galbraith, like many critics of economics, seems to believe in the following syllogism:
       1) Economists disagree about some important issues, and some economists with impeccable credentials say silly things. 2) Therefore, there is no need for a smart individual to brush up on economics--say by reading an undergraduate textbook--before making pronouncements on the subject.
       Although Galbraith systematically exaggerates and misrepresents the actual disagreements, 1) is obviously true about economics--and about medicine, and physics, and law, and any other discipline you choose to name. Did you know that astronomers cannot agree on the age of the universe, and that the current best estimates suggest that the oldest stars are older than the universe in which they shine? So maybe Copernicus was wrong!
       The point is that in each of these disciplines, we all understand that while there are major disagreements about some questions, there is also a large area on which the experts do agree, and in which their expertise is real. Only in a few subjects, economics among them, do intellectuals--and yes, especially intellectuals who are comfortable with words but not with even simple math--feel that the undoubted limitations of the field and human frailties of its practitioners mean that anything goes. Legal scholars disagree intensely about some issues, and many lawyers are fools; still, few would suggest that the chief justice of the Supreme Court ought to be someone without a law degree, far less that not having any legal training was a positive asset for the job. Yet Robert Kuttner, Jeff Faux, and others have made precisely that argument with regard to the chairmanship of the Council of Economic Advisers.
       Because of this attitude, most of the criticism economists face is not over issues where there is legitimate disagreement. Instead, the heavy majority of the challenges are simply wrong on the arithmetic. That is, the doctrines asserted either do not add up, can be shown to be flatly untrue using readily available data, or can be shown by simple calculations to involve effects much too small to bear the weight being placed on them. The problem one encounters when saying this is that you run into what Maureen Dowd has called the "Moi?" defense. How can you say that such fine, upstanding people would do such a thing? I don't know any way to deal with that defense other than to provide specific examples--which I have done, over and over again, in recent years.
       So one more time, this time in response to Galbraith's list of areas where economists disagree (How shocking! Of course, in real sciences, there are never controversies.), let me offer a sample list (there are others) of six widespread doctrines that are simply wrong--not doctrines where I disagree with the assumptions, but where the arithmetic is simply, unambiguously wrong. And, as a counter to the "Moi?" defense, let me be rude and indicate, following each doctrine, some important writers or institutions (again there are others) whom I happened to notice endorsing these doctrines in print.
       1) Wages in America have stagnated because we have lost high-wage manufacturing jobs to imports. (Galbraith has carefully avoided responding to my previous mentions of this doctrine, tacitly pretending that the only example I offered involved the quotation from Lind.) Proponents: Barry Bluestone, Robert Kuttner, Lester Thurow.
       2) Workers are hurting because labor has failed to share in national productivity gains. Proponents: Michael Lind, of course, but also Robert Reich, Business Week.
       3) A country's economic success depends on its ability to move into industries with high value added per worker. Proponents: Chalmers Johnson, Robert Kuttner, Ira Magaziner.
       4) Manufacturing has a multiplier effect on living standards because countries with high manufacturing productivity also have high wages in the service sector. Proponents: Lawrence Chimerine, Clyde Prestowitz.
       5) Because of their low wages, developing countries will simultaneously attract large capital inflows and run large trade surpluses. Proponents: World Economic Forum, James Goldsmith.
       6) There are some industries in which Third World countries have achieved near-Western productivity, yet wages in those industries remain far below Western levels; therefore, rising productivity will not lead to higher wages in the developing world. Proponents: Edward Luttwak, Walter Russell Mead, William Milberg.
       All of these arguments are just plain wrong--you don't have to believe that markets are perfect, or that orthodox economics explains everything, to discover that they just cannot be made to hang together. (But you do have to be willing to do a little algebra; I have deliberately chosen statements that sound extremely plausible to most people, including ones who are very intelligent and well read. I am not retracting my claim that the lack of a mathematical sensibility among intellectuals is the central reason why doctrines like these flourish).
       Now we all make mistakes. But the peculiar thing here is that in each of these cases, the proponents imagine themselves to have achieved a higher level of understanding, to have transcended the narrowness of conventional economics. Somebody needs to point out to them and to their audiences that, on the contrary, they are simply misunderstanding basic arithmetic.
       I often regret the feeling of obligation that led me to take on that unpopular role. For one thing, there is no better way to make a man hate you than to tell him that while he was walking around priding himself on being at the intellectual cutting edge, in fact he was merely insisting that two and two must add up to at least 25. And I would much rather have interesting arguments with people who might be right than spend my time trying to explain freshman-level concepts to unwilling listeners.
       I would hope that Galbraith will agree with me that all these doctrines are silly. If so, he and I can go on to discuss the "real" issues. But how many people realize that these are silly doctrines? In the eyes of the world, including the vast majority of people who believe themselves well informed, these are real issues raised by serious people. And I am not yet cynical enough to believe that this doesn't matter.

James K. Galbraith, a professor of government at the University of Texas, takes issue with Paul Krugman's recent SLATEcolumn, "Economic Culture Wars." Krugman is a professor of economics at MIT.