Saturday, December 4, 2010

Economists and Philosophers

In a recent post, Harvard economist Greg Mankiw makes a list of pros and cons of unemployment benefits:
The pros are that it reduces households' income uncertainty and that it props up aggregate demand when the economy goes into a downturn.  The cons are that it has a budgetary cost (and thus, other things equal, means higher tax rates now or later) and that it reduces the job search efforts of the unemployed.
He then explains how he is unsure about an unemployment insurance extension, because he has not done a quantitative analysis of these pros and cons. Then he talks about other economists who have advocated an unemployment extension, and says the following:
I suspect, therefore, that the foundation of their support comes not from having weighed the specific pros and cons of UI per se, but rather from a more general desire to "spread the wealth around."  That issue is, as I tell my students, more a matter of political philosophy than it is of economics. (Bold added.)
I don't think this makes much sense.

Either "spreading the wealth around" is a pro or a con. You can't complete a cost-benefit analysis without saying which and giving it some sort of weight or justify giving it no weight. That is, you cannot have a valid opinion without being something more than an economist. Even the "neutral" decision to give distributional issues zero weight is still a choice with consequences that has to be explained and justified. If Greg Mankiw is "correct" about what economics is (and I don't think there is an objective answer to the question of what economics is) then it logically follows that economists cannot have a valid opinion about UI benefits arising solely from the study of economics.

What I am saying is that, even if an economist had studied everything on Greg Mankiw's pro and con list, they still wouldn't be in a position to offer any policy conclusions. Because Mankiw's pro and con list does not account for a distributional issues, but UI benefits definitely undoubtedly have important distributional effects in reality that have to be accounted for somehow.

If this is so, wouldn't it be better for economists who do voice a policy conclusion to explain how they used "non-economic thinking" to account for the "spreading the wealth around" effect, which is a reality that has to be accounted for one way or another? Or maybe economists should just stay out of the policy conclusion business altogether, since nearly any policy is going to have important effects on the distribution of income and wealth, and economists, according to Greg Mankiw, have nothing to say about that.

In other words, if we accept Greg Mankiw's definition of the divide between economists and political philosophy, then only economists who are also political philosophers can arrive at conclusions about policy.

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