In casual conversation, one notices a lot more discussion of economics by people who are fairly unacquainted with the subject than with other similar disciplines. Even the most hardcore amateur paleontologist wouldn’t say something along the lines of “Well the whole idea of the pleistocene era is just nonsense.” However, when discussing economic issues, these kinds of uninformed opinions come up frequently. Why is that? Well, unlike paleontology, the economy affects everyone. And being affected by the economy, in a lot of people’s minds, makes their opinions accurate. The issue is that this is not always the case. Frequently ideas come up like “Efficient market hypothesis, well that’s just obviously false” or, “Fiscal multiplier? The government is obviously incompetent so that won’t happen.” And that’s assuming that the person talking even knows what those terms mean. So in this article, I want to address some very common misconceptions about economics as a discipline.
Misconception 1: Economics is all about -isms.
I think we’ve all had (whether we wanted to or not) a discussion on the merits of capitalism, socialism, communism, liberalism, libertarianism, conservatism, as well as a whole smattering of other -isms at least once in our life. However, in economics textbooks, you won’t really see any of these -isms mentioned except in passing. Yet a myth persists that because economics is a discipline which studies the economic arrangement of society, therefore it must defend or attack some broad -ism. Really, these kinds of -isms are more used by sociologists and historians to encapsulate extraordinarily broad trends and ideas. Art, literature and architectural movements, for example, are broadly defined this way (eg. modernism). In economics, however, you generally try to solve problems such as finding the amount that the quantity demands change with a change in price (also known as the price elasticity of demand). Other economists who are more empirically inclined, will tend to gather data on relevant economic phenomena and try to predict where prices, unemployment or business activity will go next. Many Federal Reserve banks, for example, will do this. In fact, the Federal Reserve Bank of Minneapolis recently published a paper modeling the effect of normalizing the Federal Reserve’s balance sheets on the economy. In none of this does one see a broad discussion of the relative merits of capitalism, socialism, communitarianism or whatnot. That is a subject for philosophers. Some economists will delve into these subjects, but in large that is not what economists do on a regular basis.
Misconception 2: Economics has a partisan disposition.
One thing I’ve seen come up a fair amount in my time discussing politics on campus is the idea of economists as being a group of partisans, almost always for the other side than the person accusing them of being. For example, one thing I would see fairly often coming from the left side of the aisle is that economists are the “High Priests of capital,” which is alluding to Richard Wolff, who is one of those few economists who delve into those -isms discussed earlier. On the right side of the aisle, you find that people accuse economists of constantly favoring overbearing government intervention, or supporting the federal reserve system due to the fact that it’s a very big employer of economists. Both of these propositions are hardly true. Economics as a discipline has a whole slew of people across the aisle.
You have the incredibly influential Thomas Piketty who advocates for a highly interventionist global tax on wealth to ensure equality, and you also have Nobel Memorial Prize winners like Milton Friedman, and Friedrich Hayek who are as non-interventionist in the economy as they come. And yet they all agree on the basics. This leads me to the final misconception:
Misconception 3. Economists can’t agree on anything, so why even bother?
Now, a few decades ago, maybe this proposition would be true. In the 1970’s there was a big debate in the economics discipline about some very fundamental issues, such as the relationship between inflation, unemployment and the money supply. Not to get into a too technical analysis of the debate, but the gist of the outcome of this famous debate between the Neo-Keynesians and the Monetarists is that every side had an aspect of the economy correct, but the disagreement was mostly a matter of differing views of market expectations. Once research went into an analysis of these expectations, the differences disappeared. Yet this massive debate has created the misconception today that economics as a discipline is largely divided up into “schools” that just can’t agree on the basics. Yet nothing can be further from the truth. Just about every economist agrees so much to a degree that a very famous economist, Greg Mankiw, published these ten “principles of economics” in his very widely read introductory textbook on economics. They are: 1) People face trade-offs, 2) The cost of something is what you give up to get it, 3) Rational people think at the margin, 4) People respond to incentives, 5) Trade can make everyone better off, 6) Markets are usually a good way to organize economic activity, 7) Governments can sometimes improve market outcomes, 8) A country’s standard of living depends on its ability to produce goods and services, 9) Prices rise when the government prints too much money and 10)Society faces a short-run tradeoff between inflation and unemployment (Mankiw, Principles of Economics).
There are very few principles among these that come off as partisan in nature. The only two seem to be six and seven, which are hardly radical propositions. Even the hardest right winger would admit that the government enforcing property rights improves upon market outcomes. And there was even a whole movement of socialism in the early 1900’s that emphasized employee ownership with the use of markets (because of principle 6) known as Market Socialism.
And finally, there is a 100 percent consensus among economists that economics is a widely applicable tool that is incomparably useful in our daily lives. If any reader suffers from any of these misconceptions, I would recommend visiting a few professional economists’ blogs. Especially, Scott Sumner’s blog, TheMoneyIllusion, Paul Krugman’s New York Times’ blog, Free Exchange by The Economist, and finally Microeconomic Insights. Another option would be to sign up for a few economics courses at MTU, getting involved in some related extracurriculars, or even just talking to some of the economics professors here on campus. You may learn something!
