It’s the People

Here’s an fun little article on the X-factor in economics. (H/t Casey.)

Which gets to another great variable: personal values. In his textbook “Principles of Economics,” N. Gregory Mankiw, a Harvard professor, proposed this thought experiment: A town must maintain a well. Peter, who earns $100,000, is taxed $10,000, or 10 percent of his income, while Paula, who earns $20,000, hands over $4,000, or 20 percent of her income.

“Is this policy fair?” Mr. Mankiw asks in “Principles.” “Does it matter whether Paula’s low income is due to a medical disability or to her decision to pursue an acting career? Does it matter whether Peter’s high income is due to a large inheritance or to his willingness to work long hours at a dreary job?”

Economics, Mr. Mankiw concludes, won’t tell us, definitively, whether Peter or Paula is paying too much, because an answer inevitably leads to matters of values, which inevitably leads to different answers.

This is not to suggest that economics is a total free-for-all, lacking a broad consensus on any subject. Polls of economists have found near unanimity on topics like tariffs and import quotas (bad), centralized economies (very bad) and flexible, floating exchange rates (very good). Nor is it fair to say that economists have done little to help in the latest crisis. A depression seemed possible two years ago, and thanks to the ideas of economists, that didn’t happen.