Sorry, Conservatives—Basic Economics Has a Liberal Bias

Chris House has a somewhat odd post in which he argues that unlike in most other academic disciplines, in economics the facts have a conservative bias:

I suspect that the relatively high proportion of conservative views among economics faculty is largely due to contact with the data and with standard economic analysis. In economics it seems like the facts and the analysis have much more of a conservative slant than a liberal one. It really is true that taxing labor income reduces labor supply (a little). It really is true that extending unemployment benefits encourages people to delay looking for a job (a little). It really is true that taxation can reduce employment demand; that excessive business regulation seems to be correlated with reduced levels of business formation; that union concentration has a detrimental effect on industries and on and on. Moreover, the theoretical analysis seems to fit with the observations. Now of course, a liberal’s response to this would normally be “OK, perhaps these effects are there in the data, but the magnitude of the effects is usually pretty small.” That’s often true. It’s certainly true with the minimum wage. At its current level, and I suspect at the proposed new $10.10 level, the effects of the minimum wage on employment will probably be modest.

A couple of odd things pop up here. One is that on House’s list of issues where the facts support the conservative position he includes the minimum wage, where the facts as he describes them actually support the Democratic Party’s position. Another problem for House’s view is that he says he can’t think of a single Republican in the economics department he teaches in! Indeed, every survey I’ve ever seen shows that most economists are Democrats. I think most academic economists end up with an exaggerated view of the conservatism of their fields because they spend a lot of time on college campuses, one of the most left-wing kinds of places you can go in America.

But simply to say that the opinions found in the economics department are more conservative than the views in the sociology department isn’t to say that they’re conservative relative to existing American politics.

Meanwhile, here are some ideas that I’ve seen in most of the introductory economics textbooks I’ve looked at:

  • Governments (typically through central banks) need to manage the demand level of national economies to prevent catastrophic recessions and mass unemployment.
  • Absent carbon pricing, a market economy will massively overproduce greenhouse gases.
  • Many industries, such as broadband Internet, are “natural monopolies” where an unregulated market will lead to higher prices and less investment than is socially optimal.
  • Due to asymmetrical information, consumers in a market economy will be unable to bargain effectively with doctors and other providers of health care services.
  • Due to adverse selection, consumers in a market economy will be unable to effectively insure themselves against health risks.
  • Due to the declining marginal utility of money, taking $100 from a rich person and giving it to a poor one will increase human welfare.
  • Increasing the number of immigrants, raising taxes on the rich, and making Social Security benefits more generous will make almost everyone better off.

I could go on like this. But suffice it to say that one of the main reasons that so many economists are Democrats is that on a whole lot of issues the basic econ 101 view supports the liberal position. Of course many other economists are political conservatives. That’s often because they endorse some kind of out-of-the-mainstream ethical view (perhaps taking the rich guy’s $100 is immoral even if it makes people better-off on the whole). But more frequently well-informed conservatives reject the moderately liberal econ 101 worldview for the same kind of reasons that well-informed leftists reject the moderately liberal econ 101 worldview.

People to the left of econ 101 will typically invoke the phrase “political economy” to explain why, for example, econ 101 underrates labor unions. Conversely those to the right of econ 101 will instead invoke the phrase “public choice” to explain why, for example, econ 101 overrates utility regulation. But in both cases the critics are saying the same thing, namely that the moderately liberal policies advocated by introduction to economics textbooks are ignoring certain realities of institutional design, practical politics, power dynamics, etc. And that’s why policy debates are so endless and so fascinating.