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Do Economists Agree on Anything? Yes!

Do Economists Agree on Anything? Yes!

You sometimes hear the line that if all the world's economists were laid end to end, they wouldn't reach a conclusion. This is something of a cheap shot.

True, there are debates in economics, just as there are in any science (take climate change). And in economics there are outliers (and many amateurs), just as there are quacks in medicine.

Also economic knowledge, like other scientific knowledge, evolves over time. Ideas in economics such as Soviet-style central planning and Keynesianism have been discarded over the last generation or so (although there is still no shortage of 'government knows best' advocacy).

Economics is a social science that studies regularities in human behaviour (in households, firms and the wider economy), and how people respond to incentives. Like other sciences, it is founded on theory, empirical evidence and standards recognised by members of the profession.

More so today than in the relatively recent past, there is a broad professional consensus on a range of issues. This is sometimes revealed in surveys (as are areas of dissension).

For example, there is a large measure of agreement among economists that modern economic prosperity is fundamentally dependent on good institutions and policies (such as secure property rights, uncorrupt government and the rule of law). Factors such as a country's endowment of natural resources and its size and location are less important.

Similarly, the debate between central planning and market systems (which was still being waged as recently as the 1960s) is over: most centrally planned economies have collapsed.

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Understandings of inflation have been transformed. The Keynesian idea that the sources of inflation were demand-pull and cost-push factors (like 'excess' consumer spending or 'greedy' unions and businesses) was abandoned with the 'stagflation' of the 1970s.

As Nobel Laureate in economics Ed Prescott (who visited New Zealand last year as a guest of the Business Roundtable) has written: "All respectable economists agree inflation is a monetary phenomenon" (in the sense that it won't occur if central banks avoid excessive money creation).

Surveys of economists have routinely revealed strong support for free trade as a matter of policy. This is despite the fact that in theory a number of departures from free trade could yield superior results. The difficulties of designing appropriate interventions and preventing political favouritism make free trade the best option in practice.

Interestingly, free trade illustrates the point that much of economics is independent of ideology: Adam Smith, Karl Marx and John Maynard Keynes were all free traders, and about two thirds of economics professors in the United States (who are part of the consensus on free trade) are reported as voting Democratic.

Another strong consensus of opinion recorded in a recent survey (of American Economic Association members) was against government ownership of enterprises. There was little difference between Democratic and Republican-voting economists. The empirical evidence that, on average and over time, the performance of privately owned businesses is superior to state-owned ones is now overwhelming.

Some other survey findings are interesting.

One found that over two-thirds of economists favour expanding competition and market forces in education - by funding government and private schools on the same per-student basis.

Economists are strongly against wage and price controls. One survey of members of the New Zealand Association of Economists also found that 72% of respondents thought that minimum wages increase unemployment among young and unskilled workers.

They also agreed (69%) that the share of government spending in the economy should be reduced.

On some other issues there is more dissension. Economists are divided on climate change, although it may be fair to say that the mainstream view favours cautious early action that could be adjusted over time, depending on future scientific evidence and technology developments that lower the cost of reducing emissions.

They typically favour market-based approaches to pricing carbon and, of these, favour emissions taxes over emissions trading.

Health policy, the optimal level of public debt and the role of antitrust are other examples of areas where economists' opinions differ. And political attitudes (legitimately) influence views on the extent of income redistribution (although most economists would recognise the need to balance the case for income support against the adverse impact on economic growth and the problem of welfare dependency).

Overall, however, opinion among professional economists is less divided on many big issues and less ideological than many people think.

As the author of one survey concluded, "With public discourse so marked by partisan politics, it's useful to be able to look to professional consensus as a somewhat more objective benchmark - to learn what most of those with much more knowledge and education in economics than the average TV viewer, newspaper reader or internet surfer generally believe."

Journalists and other commentators could do more to sort the wheat from the chaff in economic debates in this way.

ENDS

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