Greg Mankiw on How Right-Leaning and Left-Leaning Economists Differ

I just stumbled across this 3 1/2 year old post by Greg Mankiw on what ideas separate economists into “right” and “left” camps. Here they are, with my thoughts–not because my thoughts add much, but because it helps clarify where I stand.

The right sees large deadweight losses associated with taxation and, therefore, is worried about the growth of government as a share in the economy. The left sees smaller elasticities of supply and demand and, therefore, is less worried about the distortionary effect of taxes.

I don’t know as much about taxes and their effects as I should, so I’m pretty much in the muddled middle here. Nevertheless, I fear taxes large deficits more than I fear large deficits taxes, as I assume that over time businesses will adjust well-enough to most taxes that aren’t clearly unreasonable.

The right sees externalities as an occasional market failure that calls for government intervention, but sees this as relatively rare exception to the general rule that markets lead to efficient allocations. The left sees externalities as more pervasive.

I think externalities are pervasive, but I think most of them are too minor to justify intervention. For example, the house diagonally across the street is a hideous shade of green. One of my neighbors was prompted to call the city to complain, which I thought was sillier than painting one’s house a hideous color. I also think that farm smells are an obvious externality, but one that rarely justifies intervention. I think serious externalities that justify intervention are a small proportion of the total.

The right sees competition as a pervasive feature of the economy and market power as typically limited both in magnitude and duration. The left sees large corporations with substantial degrees of monopoly power that need to be checked by active antitrust policy.

I used to be a left-leaner because I distrusted the power of corporations and wanted government to constrain them. Then I realized that government was based on power, even more so than corporations, with little to constrain it. Then I read Lindblom’s “The Market as Prison,” and realized that the reaction of the market acts as a constraint on government regulation, and felt a little better. Then I slowly came to realize just how pervasive competition in the market is–unless government restricts it via regulation. So I guess I moved from far left to far right on this variable. I think this is one of the two primary differences between my left-leaning friends and me.

The right sees people as largely rational, doing the best the can given the constraints they face. The left sees people making systematic errors and believe that it is the government role’s to protect people from their own mistakes.

I’m not exactly on this particular scale. I believe people are disturbingly irrational. But it’s illogical to assume that people who tend to be irrational in pursuing their own interests can do a superior job of pursuing other people’s interests. That’s especially true as value is subjective (and, of course, the subjectivity of value is part of what makes other people seem irrational to us).

The right sees government as a terribly inefficient mechanism for allocating resources, subject to special-interest politics at best and rampant corruption at worst. The left sees government as the main institution that can counterbalance the effects of the all-too-powerful marketplace.

I think this is the other main difference between my left-leaning friends and me. I’m perpetually amazed at how they can complain almost non-stop about special interests while simultaneously assuming that government makes superior allocation decisions.

There is one last issue that divides the right and the left—perhaps the most important one. That concerns the issue of income distribution. Is the market-based distribution of income fair or unfair, and if unfair, what should the government do about it? That is such a big topic that I will devote the entire next lecture to it.

I don’t really find this one to be so tremendously important, since it requires some philosophical justification that I’m not qualified to do, nor are most of my left-leaning friends–defining fairness. I also think it is subordinate to the prior variable, since it is a specific example of that variable’s more general statement about allocation of resources. My take is a spin on my prior statement–I struggle to grasp how someone can worry about special interests and still believe that government policy can favor the less well-off.

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About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
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5 Responses to Greg Mankiw on How Right-Leaning and Left-Leaning Economists Differ

  1. ppnl says:

    I don’t know as much about taxes and their effects as I should, so I’m pretty much in the muddled middle here. Nevertheless, I fear taxes more than I fear large deficits, as I assume that over time businesses will adjust well-enough to most taxes that aren’t clearly unreasonable.

    What is the difference between taxes and deficit spending? As far as I can tell one takes part of your money so you can buy less and the other devalues your money so you can buy less plus interest. Deficit spending is fine in the short term when economic downturn suddenly reduces tax recites while increasing spending. Running huge deficits for 30 years of good growth is beyond silly.

    I think externalities are pervasive, but I think most of them are too minor to justify intervention. For example, the house diagonally across the street is a hideous shade of green.

    Yeah I think it is safe to say that the number of people complaining about their neighbors house vastly out number the legitimate externalities that government should address. I’m no fan of the nanny state government. But the size of some externalities are national and even global. These are where huge amounts of government intervention occur. Talking about a local ordinance against ugly green houses is a change of subject.

    The right sees people as largely rational, doing the best the can given the constraints they face. The left sees people making systematic errors and believe that it is the government role’s to protect people from their own mistakes.

    What do we mean by “rational”? The whole point of the tragedy of the commons is that an action can be individually rational and yet collectively stupid.

    I believe people are disturbingly irrational. But it’s illogical to assume that people who tend to be irrational in pursuing their own interests can do a superior job of pursuing other people’s interests.

    Well yes that is true but misses the point. To counter the tragedy of the commons you need a mechanism by which people can band together to protect a common asset. It is not (or at least should not be) some distant disinterested bureaucrat enforcing bureaucratic rules. It is a local group acting in its own interest. That’s why government is divided into federal, state and local government.

    The right sees government as a terribly inefficient mechanism for allocating resources, subject to special-interest politics at best and rampant corruption at worst. The left sees government as the main institution that can counterbalance the effects of the all-too-powerful marketplace.

    Government should not be involved in explicitly allocating resources as in taking money from one person and giving to another. Government should act on a meta level that sets the rules of play.

  2. James Hanley says:

    Nevertheless, I fear taxes more than I fear large deficits

    I have that exactly backward. I fear deficits more than taxes.

  3. ppnl says:

    Yeah, there you go. The thing about deficit spending is that it is easy to do without political consequence. If you have to pass a tax to pay for any spending you do that puts a natural brake on spending.

  4. James K says:

    ppnl: I think both you and James Hanley have good points here. I really think it comes down to details in the end.

  5. I used to be a left-leaner because I distrusted the power of corporations and wanted government to constrain them. Then I realized that government was based on power, even more so than corporations, with little to constrain it.

    In my own left-leaning, anti-corporation phase, I had some inchoate notion that the state and corporations were in cahoots somehow and the solution was to “end corporate welfare.” And I don’t think I disliked the corporate form as such, just what I believed to be the inordinate power of certain large corporations. If you had asked me at the time, I might have said I favored something more like autonomous “spaces” in which people could build a counter-corporate culture. However, I might be imputing too much rationality to how I used to think about things then.

    While I don’t think any of this is necessarily false, it is too simplistic, and I realize the “corporate economy” has its pluses as well as minuses.

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