Economic Issues Today

Alternative Approaches

Robert B. Carson, Wade L. Thomas, Jason Hecht

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317472544
• Edition: 8
• Topic: Negocios y empresa
• Subtopic: Negocios en general

Written in non-technical, everyday language that is accessible to the undergraduate audience, and requiring no background in economic analysis, this acclaimed text provides a unique approach to understanding what the practice of economics is all about. The authors address fourteen current economic issues, covering both micro- and macro-economics, and offer analyses and proposed solutions for each from Conservative, Liberal, and Radical perspectives. This new edition incorporates critical changes in economic policy since the last edition that affect every issue covered in the text. Tables have been updated throughout to include current economic data, and an all-new section on social policy frames the current debate about the Social Security system. The book's unique approach stimulates critical thinking on everyday issues that traditional texts either ignore or present as "settled" debates. It helps students to understand the dual role that ideology and logical/empirical argumentation play in economics. Issues are presented as stand-alone subjects that can be read in any sequence and used to supplement a wide range of principles of economics texts. An instructor's manual with a test bank and discussion questions is available to professors who adopt the text, and Power Point downloads are available as teaching aids. The text is also available in two separate volumes: Microeconomics Today and Macroeconomics Today.

Part I

Introduction

Alternative Economic Philosophies

A Survey of Conservative, Liberal, and Radical Critiques

The ideas of economists, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

—John Maynard Keynes, 1936

As of this writing (2005), the American economy had experienced only two brief recessions (in 1990–91 and 2001) during the past twenty-two years. Add to this the fact that the American economy remains the envy of the rest of the world. By such indicators, we should be—at least with respect to economic matters—a content and happy people. Right?

Alas, economic matters rarely seem to be a solid source of shared contentment. As the outcome of the 2000 and 2004 presidential elections indicates, the country remains equally divided on the question of whether or not the American economy was headed in the right direction. This down-the-middle division leads to an obvious conclusion (and one completely independent of who won and who lost the election): A great many Americans are uncertain about their nation’s economic future. In fact, the uncertainty does not end there. Each thoughtful member of either side of the great divide in opinion has to wonder about what is going on in the minds of those who went the other way on the question of the “right direction.”

As with all such periods of economic uncertainty and disagreement, the citizenry becomes increasingly interested in economic matters and the observations and advice that might be offered by the keepers of economic wisdom: economists. Mostly ignored in good times, economists can count on getting the public’s attention when worries about bad times arise. And so, economists once again find a growing popular interest in their “dismal science.”

Alas, when they are thrust into the spotlight, economists invariably reveal something about their discipline that ordinary citizens tend to forget during the good times. As those recently watching economists on TV or reading op-ed pieces by economists were soon to discover (or, if old enough, rediscover), economists are rarely of one mind with respect to matters of deep and immediate economic impact. Some Americans suffering unease about the economy in general may experience a heightening of this malady as a result of the evident lack of unanimity in the economics profession. However, this has been an abiding characteristic of the keepers of economic wisdom for a very long time.

It is well for the reader to remember that throughout the long history of human efforts to understand and explain economic matters, disagreement rather than consensus has been the rule. In a nation that puts great stock in consensus building as the ultimate tool of governance and the principal device for sustaining social order, this may be a disconcerting fact. In any event, it is one we should understand. Even in times of considerable national economic prosperity, real differences of political and economic opinion still circulate. And, as we should know from the historical record, economic prosperity itself has always been a transitory condition; when it fades, debate over alternative economic policies often becomes heated.

When that debate takes place, squabbling among economists over policy alternatives can scarcely be hidden from the public, and such disagreement can be downright unsettling. It often comes as a rude surprise to the person on the street, who, although paying due professional respect to economists, still sees the economist as a kind of mechanic. When one’s car does not start, the car owner expects (at least hopes) that the diagnosis of mechanical trouble given at one garage is exactly the same as what will be heard at any other. If there is one mechanical problem, there should be one mechanical solution. The moral of this comparison is that the study of economics is more than studying a repair manual, and economists are not mechanics.

Economics and Ideology

How is such disagreement possible? Is not economics a science? Economists’ answers to that question vary. A common and reasonable enough response is simply that scientists disagree too. While there is much truth to such an answer, it really begs the question. Plainly, economics is not a science like physics. Whereas economists may sometimes talk about the laws of supply and demand as if they were eternal verities like the law of gravity, there is abundant anthropological and historical evidence that many societies have behaved quite contrary to the laws of supply and demand.

To be sure, economists employ (or at least should employ) the rigor of scientific method and quantitative techniques in collecting data, testing hypotheses, and offering reasonable conclusions and predictions. However, economists deal with different “stuff” than their colleagues in the exact sciences. Their data involve human beings, and their laboratory is a world of behavior and perception that varies with time and place. On top of this, economists, like all social scientists, are called on to answer a question not asked of those in the pure sciences: “What ought to be?” Astronomers, for instance, are not asked what ought to be the gravitational relationships of our universe. That would be a nonsensical question. Economists, however, cannot evade making some determinations about optimal prices, optimal income distribution, and so forth. Their decisions, while perhaps based on a genuine effort at neutrality, detachment, and honest evaluation of the available evidence, finally must be a matter of interpretation, a value judgment based on their own particular world views. To put the point directly: Economics, as a study of human behavior, cannot avoid value judgments. Struggle as it may, economics as a discipline is never free from ideology.

The early economists of the eighteenth and nineteenth centuries—Adam Smith, David Ricardo, John Stuart Mill, and especially the heretic Karl Marx—perceived economics as merely part of a broader political economy context, but this view had been largely abandoned by the end of the nineteenth century. By the middle of the twentieth century, the economics profession generally approached ideology as if it were a dirty word, unprofessional, or, at the very best, too troublesome to deal with. The emphasis was on theoretical tools, considered both universal and neutral. All this changed in the 1960s and 1970s when well-known American economists thrust themselves into the powerful debates then sweeping American society. Their views on the war in Vietnam, poverty, civil rights, the extent of government power, the environmental crisis, the oil embargo, the causes of stagflation, high technology versus smokestack industries, and much more could be heard regularly on television talk shows and miniseries or read in the columns of weekly newsmagazines. Often there was the pretension that this “talking out of church” had little impact on the body of professional theory and judgment, but the pretension was unconvincing. For good or ill, the genie was out of the bottle, and the economics profession had again become involved in politics and in recommending political courses of action to pursue economic objectives.

Initially, through the 1960s and into the early 1970s, prevailing opinion among economic reasoners upheld a Liberal perspective on political economy, advocating an active interventionism by government to correct and improve the workings of the economy. However, during the late 1970s, this consensus began to break down as the national economy slipped into a long period of sagging growth, rising unemployment, and escalating inflation. In its place, a new consensus began to build on behalf of a Conservative, minimum-government approach to political and economic matters. As the Liberals’ star fell and the Conservatives’ rose, the intensity and bitterness of economic and political argument sharpened. Although the shrillness of the ideological debate calmed a bit during the Reagan years—no doubt a by-product of the long economic expansion that began in late 1982—the past four decades of shifting ideological perspectives have left their mark on the economics profession. To a considerable extent, the ordinary economics textbook illustrates this point. While economics texts continue to do what such books have always done, namely, to introduce the reader to a generally agreed-on body of theoretical and analytical techniques and tools that constitute the study of economics, most have also found it necessary to identify and discuss the alternatives of Liberals, Conservatives, and, sometimes, even Radicals in the practical extension of economic analysis to actual policy-making situations.

The significance of all this should not be lost on the beginning student of economics. Though many economists may stress the value-free nature of their studies, and of economics in general, common sense and observation suggest that this is at best a vastly exaggerated claim. The content and application of economic reasoning are determined ultimately by the force of what economists believe, not by an independent and neutral logic. But to say that economics is a matter of opinion is not to say that it is just a study of relatively different ideas: Here is this view and here is that one and each is of equal value. In fact, opinions are not of equal value. There are good opinions and there are bad ones. Different economic ideas have different consequences when adopted as policy. They have different effects—now and in the future. As we confront the various policy solutions proposed to deal with the many crises now gnawing deep into our economy and society, we must make choices: this one seems likely to produce desired outcomes, that one does not. No other situation is consistent with a free and reasoning society. Granted, it is a painful situation, since choice always raises doubts and uncertainty and runs the risk of wrong judgment, but it cannot be evaded.

This book is intended to focus on a limited number of the hard choices that we must make. Its basic premise is that economic judgment is fundamentally a matter of learning to choose the best policy solution among all possible solutions. The book further assumes that failure to make this choice is to underestimate the richness and importance of the economic ideas we learn and to be blind to the fact that ideas and analyses do indeed apply to the real world of our own lives.

On Sorting Out Ideologies

Assuming that we have been at least partially convincing in our argument that economic analysis is permeated by ideological judgment, we now turn to examine the varieties of ideology common to American economic thought.

In general, we may characterize the ideological position of contemporary economics and economists as Conservative, Liberal, or Radical. These, the same handy categories that evening newscasters use to describe political positions, presumably have some meaning to people. The trouble with labels, though, is that they can mean a great deal and, at the same time, nothing at all. At a distance the various political colors of Conservative, Liberal, and Radical banners are vividly different. Close up, however, the distinctiveness blurs, and what seemed obvious differences are not so clear. For instance, there is probably not a strictly Liberal position on every economic issue, nor are all the economists who might be generally termed Liberal consistently in agreement. The same is true in the case of many Radical or Conservative positions as well. Unless we maintain a certain open-endedness in our categorizing of positions, the discussion of ideological differences will be overly simple and much too rigid. Therefore, the following generalizations and applications of ideological typologies will attempt to isolate and identify only representative positions. By doing this we can at least focus on the differences at the center rather than on the fuzziness at the fringes of these schools of thought.

We are still left with a problem. How do you specify an ideological position? Can you define a Radical or a Liberal or a Conservative position? The answer here is simple. As the British economist Joan Robinson once observed, an ideology is like an elephant—you cannot define an elephant but you should know one when you see it. Moreover, you should know the difference between an elephant and a horse or a cow without having to resort to definitions.

There is a general framework of thought within each of the three ideological schools by which we can recognize them. Thus we will not “define” the schools but merely describe the salient characteristics of each. In all of the following, the reader is urged to remember that there are many varieties of elephants. Our specification of a particular ideological view on any issue is a representative model—a kind of average-looking elephant (or horse or cow). Therefore, the Conservative view offered on the problem of federal deficits, for instance, will probably not encompass all Conservative thought on this question. However, it should be sufficiently representative so that the basic Conservative paradigm, or worldview, can be distinguished from the Radical or Liberal argument. Where truly important divisions within an ideological paradigm exist, the divisions will be appropriately noted and discussed.

A Brief Footnote on the Paradigms

The reader should be aware that ideological labels and categories presently are used by Americans in an increasingly flippant fashion. For example, TV journalism’s efforts to “dumb down” news reporting and editorial commentary on the news has produced the well-known talking-head format where analyses of events are sifted and sorted into “from the Right” and “from the Left” perspectives. Based upon the authors’ experiences, this technique of dividing up Conservative, Liberal, and Radical political-economic ideas—handy as it may be for sound-bite making—creates some awful confusion.

Neat division into “Left” or “Right” is a dangerous oversimplification of the range and variety of ideological points of view. The Left presumably includes all Liberals and Radicals, and the Right catches all Conservatives. To dump Liberals and Radicals into a presumably shared-interest category is a monumental error of the first order. True Liberals and true Radicals have been at each other’s throats for a century or more. Indeed, they have been at war with each other more than either one has been at war with Conservatives.

The Left-Right designation of ideologies rests on the false assumption that political-economic belief can be neatly segregated and compartmentalized along a continuum—with Adam Smith on one end and Karl Marx on the other. Accordingly, leaning Left or Right is apparently determined by where along this continuum one is located: nearer or further from Marx and Smith. Alas, ideas are not susceptible to arrangement along a continuum. To arrange political-economic ideas as if they were part of a unified spectrum is about as useful as arranging one’s personal library according to book size or one’s CD collection according to the color of the disks’ cases.

However, the most troublesome and misleading aspect of the Left-Right categorization of American opinion is its habit of not sorting outlooks according to the types of issues that individuals might address. Tasteless as some may find the following “for instances,” where on the Left-Right spectrum should we locate a gay or lesbian couple who regularly vote Republican but are also seeking to obtain a marriage license or the aging Pentecostal Christian who is utterly dependent on Social Security monthly checks and Medicare to support himself and his wife?

The point is that sexual orientation or religious belief are questions of personal and social values (as is the matter of one’s preferred major league baseball team) and not necessarily a reflection of one’s political ideology at all. To be sure, political conservatives may court those who adhere to “conservative” personal values (sometimes called “family values”) and liberal ideologues may cultivate those of a “liberal” bent with respect to their personal beliefs, but that is a separate matter from the examination of competing economic ideologies.

The purpose of this “footnote” is to underscore that the following Conservative, Libera...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Figures and Tables
• Preface
• Acknowledgments
• Part I. Introduction
• Part II. Problems in the Marketplace
• Part III. Problems of Aggregate Economic Policy
• Part IV. Conclusion
• Index
• About the Authors