Ideology and Economic Knowledge

Prof Daniel Klein of had a brief piece in the WSJ this week talking about how people’s economic knowledge or ignorance breaks down by ideological lines.

Zogby researcher Zeljka Buturovic and I considered the 4,835 respondents’ (all American adults) answers to eight survey questions about basic economics. We also asked the respondents about their political leanings: progressive/very liberal; liberal; moderate; conservative; very conservative; and libertarian.

Rather than focusing on whether respondents answered a question correctly, we instead looked at whether they answered incorrectly. A response was counted as incorrect only if it was flatly unenlightened.

Consider one of the economic propositions in the December 2008 poll: “Restrictions on housing development make housing less affordable.” People were asked if they: 1) strongly agree; 2) somewhat agree; 3) somewhat disagree; 4) strongly disagree; 5) are not sure.

Basic economics acknowledges that whatever redeeming features a restriction may have, it increases the cost of production and exchange, making goods and services less affordable. There may be exceptions to the general case, but they would be atypical.

Therefore, we counted as incorrect responses of “somewhat disagree” and “strongly disagree.” This treatment gives leeway for those who think the question is ambiguous or half right and half wrong. They would likely answer “not sure,” which we do not count as incorrect.

In this case, percentage of conservatives answering incorrectly was 22.3%, very conservatives 17.6% and libertarians 15.7%. But the percentage of progressive/very liberals answering incorrectly was 67.6% and liberals 60.1%. The pattern was not an anomaly.

The other questions were: 1) Mandatory licensing of professional services increases the prices of those services (unenlightened answer: disagree). 2) Overall, the standard of living is higher today than it was 30 years ago (unenlightened answer: disagree). 3) Rent control leads to housing shortages (unenlightened answer: disagree). 4) A company with the largest market share is a monopoly (unenlightened answer: agree). 5) Third World workers working for American companies overseas are being exploited (unenlightened answer: agree). 6) Free trade leads to unemployment (unenlightened answer: agree). 7) Minimum wage laws raise unemployment (unenlightened answer: disagree).

How did the six ideological groups do overall? Here they are, best to worst, with an average number of incorrect responses from 0 to 8: Very conservative, 1.30; Libertarian, 1.38; Conservative, 1.67; Moderate, 3.67; Liberal, 4.69; Progressive/very liberal, 5.26.

Americans in the first three categories do reasonably well. But the left has trouble squaring economic thinking with their political psychology, morals and aesthetics.

To be sure, none of the eight questions specifically challenge the political sensibilities of conservatives and libertarians. Still, not all of the eight questions are tied directly to left-wing concerns about inequality and redistribution. In particular, the questions about mandatory licensing, the standard of living, the definition of monopoly, and free trade do not specifically challenge leftist sensibilities.

Yet on every question the left did much worse. On the monopoly question, the portion of progressive/very liberals answering incorrectly (31%) was more than twice that of conservatives (13%) and more than four times that of libertarians (7%). On the question about living standards, the portion of progressive/very liberals answering incorrectly (61%) was more than four times that of conservatives (13%) and almost three times that of libertarians (21%).

The survey also asked about party affiliation. Those responding Democratic averaged 4.59 incorrect answers. Republicans averaged 1.61 incorrect, and Libertarians 1.26 incorrect.

This is not strictly a matter of Klein having a right-leaning ideology, some topics which cleave strongly left/right among the general public are actually agreed on pretty widely by economists. (For more examples, click through to the paper Mankiw is linking to.)

If Klein had wanted to include something to challenge conservative sensibilities, however, he might have tried the followoing: “The Laffer Curve proves that lowering tax rates always results in higher tax revenues through economic growth.” (unenlightened answer: agree)

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26 Responses to Ideology and Economic Knowledge

  1. M.Z. says:

    The best data on question #7 says the unenlightened answer is the correct answer. Our best data on #6 suggests that free trade between a highly developed country and less developed country leads to labor transfer from the former to the latter. #1 has all sorts of assumptions. Generally licensing is non-determinative, like the cost of postage in deciding to open a law office. Certainly scenarios can be envisioned where both are determinative, but in practice, it isn’t the case. #2 is dependent upon your measurements and largely amount to saying that having a color television means you have a better lifestyle. I think #5 is purely ideological.

  2. Yes, well, obviously “best data” is a term which can be used to mean “data that I like”. Looking at what actual economists have to say on the topic, I’d say the only one of these where Klein is perhaps reaching a bit in regards to consensus is on the minimum wage, where opinion is split fairly evenly among economists as to whether it increases unemployment. From the papers I’ve seen on the topic, the breakdown on that is basically that if you raise the minimum wage a small amount, you don’t measurably increase unemployment of adults looking for work — though marginal workers such as teenagers often end up working less, though they don’t report as “unemployed”. Clearly, if a massive minimum wage increase was put through, it would result in measurable unemployment increases, but people are generally smart enough not to do that.

    The general trend here is pretty accurate:

    Progressives : Economic Consensus :: Conservatives : Climate Science Consensus

  3. M.Z. says:

    Personally I prefer to evaluate intelligence on people understanding the parts that are under debate. Needless to say, that question is hard to poll. To pick another topic, I’m not convinced that people that accept evolution have a better understanding of it than those those that reject it, although it is fashionable to portray the latter as ignorant rubes. A lot of these things just accept conditioned response.

    I could just mean “best data” in the sense of our best research.

  4. Zippy says:

    Well, 5 and 6 (at least) are blatantly ideological, offhand.

    “Free Trade” does lead to unemployment for some people, and new jobs for others; where “some” is most often natives of wealthy countries at the low end of the income scale and “others” are usually natives of poorer countries. There are whole categories of native citizens for whom free trade has been and is a personal disaster, and economic libertarians do themselves no favors with their ridiculous “see no evil” pretense otherwise.

    Work conditions at third-world manufacturing facilities are much worse than in domestic facilities, and those poor conditions are part of what makes the third world ones cheaper to operate. It isn’t unreasonable to conclude that third-worlders are being exploited in order to avoid paying the higher cost of native labor. Someone might disagree that that is “exploitation”, but now we enter into semantics, and someone who thinks it is “exploitation” could quite legitimately give the supposed “unenlightened” answer.

    This might be an interesting survey if it in fact was not a piece of ideological propaganda. I fully expect that as a very gross generalization more conservative people as a group tend to do a better job accepting the world as it is, and more liberal people as a group tend to live in utopian fantasy worlds.

    This particular survey though appears, right on its face, to reside in an economic-libertarian fantasy world.

  5. T. Shaw says:

    I know why liberals are not greatly function in economics and math.

    Economics and math are based on realisms, i.e., there are right and wrong answers. Economics less so than math because there are tens of millions of players, actions, decisions, etc. constantly evolving and interacting (and many ‘mistakes’ are made in decisions – all players are not economically rational, e.g., idiot politicians – I repeat myself – who hold sway over expanding regulatory matters). That is why central planning/collectivism was a disaster everywhere it was tried. The sad peoples of Venezuela and Zimbabwe are learning that the hard way at this moment.

    Liberals aren’t good at math or economic because math/economics are not susceptible to mythical worldviews or weeping and gnashing of teeth.

  6. Blackadder says:

    I’d say the only one of these where Klein is perhaps reaching a bit in regards to consensus is on the minimum wage, where opinion is split fairly evenly among economists as to whether it increases unemployment.

    Economists are about evenly split on the question of whether there should be a minimum wage. On the question of whether it increases unemployment it’s about three to one in the affirmative.

    For the “best data” I would suggest Neumark and Wascher’s recent survey.

  7. M.Z. says:

    Probably the greatest problem in economics is its inability to understand dominating phenomenon. The minimum wage is a prime example. Economics 101 goes to marginal utility and claims that rising minimum wage equals fewer jobs. This neglects that the people who earn minimum wage aren’t the dynamic components of companies. A companies decision on placement will be more greatly dictated by the availability of professionals at the top end rather than the demands of lower end workers. This is pretty true about a lot of things. NYC will have greater housing demand than Pigeon Creek, Montana, even though NYC has a greater regulatory burden than Pigeon Creek. The Econ 101 student will argue that NYC could have more if they repealed its regulations and Pigeon Creek would have less demand if it increased its regulations, which is all well and fine and could possibly even be stipulated, but they aren’t the driving factor for housing demand.

  8. That doesn’t change the fact that, all other things held constant, rent control will decrease housing availability, or raising the minimum wage will increase unemployment.

    Nor do I think you’d find many economists were unclear on the fact that rent control is not the only difference in regards to housing demand and availability in NY vs. Montana.

  9. Economists are about evenly split on the question of whether there should be a minimum wage. On the question of whether it increases unemployment it’s about three to one in the affirmative.

    Thanks for the correction, BA. I’d been going off a the Whamples’ survey link, but that only said that 37% think the minimum wage should be increased while 48% think it should be elminated. Looks like you’ve got more comprehensive info there.

  10. M.Z. says:

    All things are never held constant.

    If the minimum wage is not the driving factor in employment, the raising of it will not increase unemployment. High tech firms move into expensive cities where they have to pay clerical and janitorial help much higher than the minimum wage. In many, if not most circumstances, the effect on employment by raising the minimum wage will be trivial.

  11. Zach says:

    I personally would like the minimum wage to be $50,000/year with benefits.

  12. Whether things are held constant depends on your frame of reference and what question you’re are trying to answer. The question of whether California having a higher minimum wage than Wisconsin will result in California having higher unemployment is not a question which can be answered by a “all other things being held constant” kind of question. However, if Wisconsin was attempting to decide whether to increase their minimum wage to $15/hr next year, you may be assured that things would be constant enough for an effect to be felt.

    However, I will certainly grant you that if the minimum wage is increased by amounts which do little more than equal local price trends (which is what is generally done) there will be trivial effects. (And trivial benefits.)

  13. restrainedradical says:

    The answers to statements 5-7 are wrong if the questions are taken literally. Are not some foreign workers not paid just wages? The Autoworkers Union doesn’t oppose free trade for no reason. And a $1 min wage would have absolutely no effect on unemployment.

    If I were conducting the poll, I’d ask a few more questions.
    1. An income tax cut would increase tax revenue (unenlightened answer: agree).
    2. The federal budget can be balanced without raising taxes or cutting defense spending (unenlightened answer: agree).
    3. Fortune 500 executives pay a higher effective tax rate than their secretaries (unenlightened answer: agree).
    4. Over 1% of the federal budget goes to foreign aid (unenlightened answer: agree).
    5. Income inequality has been increasing over the past 30 years (unenlightened answer: disagree).
    6. Americans have more economic mobility than those in most other developed countries (unenlightened answer: agree).

  14. RL says:

    And a $1 min wage would have absolutely no effect on unemployment.

    Can the same be said for a $30 min wage? I think that goes to Darwin’s observation regarding trivial effects from trivial amounts.

    Are not some foreign workers not paid just wages?

    No doubt. Same with many Americans. However, I wouldn’t base any assessment on that regarding the UAW’s support or lack thereof. Frankly, the UAW is really only concerned about their own being. They would just as much object to a manufacturer moving an operation to a foreign country regardless of how well paid the new employees are. Nor would I consider a lesser wage in a foreign country to be unjust. It must be measured by the effects and what it does for a person. If it raises someone out of poverty, provides a better standard of living, and perhaps better health and education for themselves and their offspring, I’d say it was a good thing for the worker and certainly not exploitation. I’m not saying there aren’t true sweatshops and exploitation, I just think that the calculus of paying less wages to someone else” = exploitation is incorrect. I think that is why some people see that question as an ideological one rather than an attempt for an objective (even if qualified) answer.

  15. restrainedradical says:

    RL, my previous post was unclear. I didn’t mean to suggest that the UAW opposes free trade because of unjust wages. It was meant as a separate point to statement #6 which says that free trade doesn’t cause unemployment. The UAW opposes free trade because it would cause unemployment within its ranks.

  16. Though at the same time, I would take it that #6 was talking about unemployment aggregate in the economy as a whole — not that some particular group of jobs might disappear and be replaced by others.

    For instance, tragic economic upheavals have put wheel wrights and buggy builders out of business almost entirely — and yet it’s unclear that we are suffering unemployment as a result at this point.

    Those people really did lose their jobs, and it might have helped them short term if they had managed to get alternate methods of transportation banned, but the changes there did not in fact result in long term unemployment.

  17. RL says:

    Gotcha RR, sorry for the misunderstanding.

  18. Zippy says:

    For instance, tragic economic upheavals have put wheel wrights and buggy builders out of business almost entirely — and yet it’s unclear that we are suffering unemployment as a result at this point.

    That strikes me as something of misdirection, since what is usually at issue as far as globalization and “free trade” is concerned is not new products displacing old products, but making the same products for less cost, and therefore higher profits, by exploiting cheaper (for a whole variety of reasons) third world labor.

  19. Klein is, of course, stacking the deck. Some of his answers are vague. In 4, it may or may not be a monopoly. In 5, they may or be not be exploited. In 6, free trade most certainly leads to unemployment in certain sectors.

    I have the greatest problem with 2. Are living standards higher than 30 years ago? Well if you look at GDP capita, most certainly, and I assume that this is what Klein has in mind. But this definition really ignores the stark rise in inequality. What happened over the past 30 years (except for a small interlude in the 1990s) was that the gains from growth went to the rich. Median real wages have been pretty stagnant since the early 1970s (for men, they did not rise at all, and for prime-age men, they actually fell).

    Overall, Mankiw’s list is more honest, and more reflect of reality.

    I could have some fun and design some of my own questions!

    (1) Cutting income taxes raises revenue (unenlightened answer: agree).

    (2) There is no need for regulation as market discipline works fine (unenlightened answer: agree).

    (3) Fiscal stimulus made the recession worse (unenlightened answer: agree).

    (4) Collective wage bargaining is harmful for unemployment (unenlightened answer: agree).

    (5) Government intervention in the healthcare market through the combination of community rating and an individual mandate makes healh care more expensive (unenlightened answer: agree).

  20. restrainedradical says:

    MM, I took “standard of living” to mean “standard of living,” not GDP per capita. People, even the poor, are materially better off today than they were 30 years ago. I agree with the rest of your post, though #2 and #4 are true in many cases and #5 is true for many people.

  21. Timothy says:

    If the minimum wage is not the driving factor in employment, the raising of it will not increase unemployment.

    Doesn’t follow.

  22. Blackadder says:

    If the minimum wage is not the driving factor in employment, the raising of it will not increase unemployment.

    Doesn’t follow.

  23. Blackadder says:

    “free trade” is concerned [not with] new products displacing old products, but making the same products for less cost, and therefore higher profits

    Doesn’t follow.

  24. MM’s 1-3 I think are legit, though I prefer my wording of 1) since there are some situations in which cutting taxes would increase revenues, while others when it would decrease them. (Right now, my bet would be that cutting taxes would not increase revenues.)

    4) I’d agree so long as you’re not automatically assuming closed shop.

    5) strikes me as rather dubious right now — though it’s certainly true that the pair of community rating and individual mandate makes health care less expensive than either one of those without the other. If the claim that it is less expensive than any other common arrangement, that strikes me as something we’re in no position to defend right now.

  25. On Klein’s original #2 — I really don’t see how one can credibly disagree, unless one is speaking from a particular position of privilege which has since been overturned.

  26. j. christian says:

    My experience in grad school was that the most vocally leftist students were the most ill-informed about economics. It was sometimes painful (and occasionally humorous) to watch their mental contortions as their orthodoxies were shattered. Of course, this is not to dismiss all leftist arguments: it’s just that those students could no longer base their arguments on their flawed version of armchair economics.

    If by “economics” we mean merely the academic discipline alone, it’s hard to argue against Klein. However, if we mean the larger, normative application of economics as part political economy, part moral philosophy, part public policy and sociology, then there is room to disagree with his findings.

    To make a bold generalization:
    No economics education = progressive
    Some economics education (undergrad econ 101) = libertarian
    Way too much economics education (and you know who you are, myself included) = politically all over the map; can argue yourself into almost any position

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