The latest debate in the economics blogosphere is about the true meaning of the term “Very Serious People,” a term of derision initially used to describe some supporters of the Iraq war. It was later broadened to describe people who advocate for the tough position on any issue – budget cuts and entitlement reform to ease debt worries, increases in interest rates to prevent inflation, and so on – despite evidence contrary to their policy proposals.
Very Serious People often embrace unpopular policies; they adopt the tough and serious route they believe is needed to ensure the US remains on solid footing, and they ridicule the opposition as softies unwilling to accept that there is no easy way to overcome our economic problems. Gain requires pain, but we should note that the tough policies Very Serious People embrace usually impose the pain on other people -- often the poor and disadvantaged. When they are asked to step up and pay more taxes to reduce the deficit, for example, their tune generally changes.
Henry Farrell, an Associate Professor of Political Science at George Washington University says, “Being a Very Serious Person is about occupying a structural position that tends to reinforce, rather than counter, one’s innate biases and prejudices.” I’m not sure that fully captures the desire to appear tough and disciplined, to be seen as the one willing to say what needs to be done no matter how hard it is, but it did lead me to think about the degree to which I, and other economists, are influenced by our political leanings. To what extent do our politics determine our economics?
I actually hope that it’s the other way around, that economic considerations drive my political views on economic issues. For example, in a recent column I outlined the many ways that markets can fail and touched upon how government can intervene and improve economic outcomes. This speaks directly to the debate over the extent to which governments should intervene in private markets.
Conservatives take a mostly hands-off approach. They believe the less that government interferes in the private marketplace, the better. They agree that market failures exist, though they generally do not believe they are as severe as those on the political left are. But the big difference between Republicans and Democrats is the faith that each side has in the ability of the government to improve market outcomes. I think it’s very clear that government, though far from perfect, can make things better in most cases. But conservatives believe that government usually makes things worse.
My belief that government intervention can improve economic outcomes extends beyond microeconomics and individual market failures such as the presence of monopoly power, asymmetric information, adverse selection, moral hazard, and principal-agent problems. The capitalist system is better than all other economic systems we know about at satisfying household demands and producing economic growth. But it is also subject to business cycle variation that can impose large costs such as unemployment and all the problems that come with it on people who did nothing at all to cause the recession. In essence, the capitalist system imposes externalities on innocent households when it goes into one of its periodic downturns.
When this happens, conservatives believe that government should get out of the way and let the economy heal itself. Once again, their view is that government mostly makes things worse despite its good intentions. But I think the evidence is very strong that both monetary and fiscal policy can be used to ease economic downturns and reduce the costs of recessions for the typical household. Beyond monetary and fiscal policy, social insurance programs such as unemployment compensation, food stamps, and medical insurance that does not end with unemployment can further ease the burden that recessions impose on households.
There is one government intervention that Democrats often promote that has always been harder for me to justify based upon economics -- the redistribution of income and wealth. I was one of those people who believed in leveling an extremely uneven playing field, and then letting the chips fall where they may. So long as everyone has an equal chance at success, there is nothing to worry about. But over time, my view has shifted. We should still do all we can to equalize opportunity, but redistribution cannot be avoided.
- First, there is growing evidence that once inequality passes a critical threshold, it becomes a drag on economic growth. So there is an efficiency argument for redistributing income.
- Second, it isn’t possible to equalize opportunity without some a priori redistribution. The wealthy have inherent social and economic advantages that perpetuate inequality across generations, and I see no way to solve that without some degree of redistribution through high inheritance taxes or other means.
- Third, technological change may doom some households to a meager existence. No matter how hard they try, no matter how much education or retraining they receive, they won’t be able to find jobs that have been taken over by machines and digital technology. That is not their fault, it is an outcome of the economic system itself, and some type of social insurance that augments their income is appropriate in such a case.
I have no doubt that political considerations motivate the views and policy proposals of some economists, particularly, though far from exclusively, those outside of academia. I also have no doubt that my political views influence me in ways that I am unaware of. My political views certainly affect how I weigh the evidence on economic issues, i.e. what questions I think are important and what empirical results are the most noteworthy. But I hope that, to the extent possible, my political views on economic issues are informed by solid theoretical and empirical results. And when the economics and politics are at odds, as they often are on issues such as free trade and immigration, the economics must prevail.