new empirical research on unions and upward mobility

At various points during Anti-Mankiw's history we've devoted ourselves to a topic that is often completely ignored by the mainstream: institutions. And even when they are talked about, it's usually in the context of their distorting or enhancing effects on economic efficiency. Schooling, we are told, raises the productive potential of the individual by imparting on him or her the skills or signals conducive to success in the labor market. Unions, we are told, distort labor market equilibrium by artificially raising wages. No matter the story, you can bet that it has something to do, in the end, with economic efficiency. [Read this post which sums up Anti-Mankiw's view of the education debate with the mainstream quite well.]

Those devoted to a social economy approach, on the other hand, realize that mainstream economics' views about efficiency are overly simplified at best and downright biased at most. Boiling efficiency down to a simple, monetized concept of "welfare" in which outcomes are compared to an idealized market equilibrium is inappropriate when other social desiderata are relevant -- such as health, or stable living standards, or a sustainable environment. In the social economy approach, unions are signals of a stable society because collective bargaining can be used to counter employer power.

New state-level evidence from the U.S. presented by our colleague at UMass Eric Hoyt as well as CEPR senior economist John Schmitt shows that there is at least a weak positive relationship between union density and various measures of upward economic mobility (see the link for the details -- it's a short post and would be a great teaching resource in an intro-level course). Such evidence goes a long way in furthering the social economy approach to economics, in which economic mobility is dealt with in a concrete manner. While Mankiw may suggest time and again that education is the means by which economic opportunity is realized, neither the data nor the theory -- from a social-institutional standpoint -- validates his claim (at least, not as education is currently done in the U.S.!).

Hoyt and Schmitt, on the other hand, suggest an alternative institution for enhancing economic mobility and have the data to back it up.

rodrik on occupy ec 10

Responding to the issues surrounding the Ec 10 walkout, highly acclaimed development economist Dani Rodrik weighs in on the particular question of the ideological content of mainstream economics here.

We at Anti-Mankiw are glad to see the debate moving past the difficult-to-support claim that mainstream economics is not political, or that Mankiw's ideology is "not at all obvious". As we tried to emphasize in a previous article, a key sign of an ideological approach, especially in economics, is when space is not opened up to a critical analysis of the economy.

We are hoping that Mankiw can begin to address the most important question behind the walkout, namely, why any group of students would choose to walk out on a course that has (in theory) so much potential for enriching discourse on the economy. Thankfully, Rodrik suggests to us an entrypoint. His premise is the vast set of  policy proposals often invoked in economic theory. As he states succinctly here:

Indeed, though you may be excused for skepticism if you have not immersed yourself in years of advanced study in economics, coursework in a typical economics doctoral program produces a bewildering variety of policy prescriptions depending on the specific context. Some of the frameworks economists use to analyze the world favor free markets, while others don’t. In fact, much economic research is devoted to understanding how government intervention can improve economic performance. And non-economic motives and socially cooperative behavior are increasingly part of what economists study.

It is not clear to us how Mankiw's particular assumption set -- i.e., his 10 principles -- makes him immune to Rodrik's point. Aren't they just another assumption set, chosen by a professor with certain political aims? The weakness in Mankiw's approach is in the level of critical analysis that takes place in discussing economics. And why should introductory students at Harvard be spared of learning about the tools necessary for critique? Rodrik continues:

Now let the reporter go undercover as a student in the professor’s advanced graduate seminar on international trade theory. Let him pose the same question: Is free trade good? I doubt that the answer will come as quickly and be as succinct this time around. In fact, the professor is likely to be stymied by the question. “What do you mean by ‘good?’” he will ask. “And good for whom?” 

In other words, economic policy proposals are much more nuanced than Mankiw seems to present. (A similar argument could easily be made for recent economics work on minimum wages.) And if we were to add such nuance, this does not necessarily make things to difficult to grasp. At UMass, we ask these kinds of questions to our undergraduates: we ask them how different efficiency criteria might change ones policy proposal, and we question the foundations of a hedonistic approach to economic theory. While such discussions admittedly require sources outside of the standard textbook, there is no need to go "too far" for a solid discussion of these issues. They are definitely in the reach of first year students.

We'll let Rodrik have the last word here:

Applied appropriately and with a healthy dose of common sense, economics would have prepared us for the financial crisis and pointed us in the right direction to fix what caused it. But the economics we need is of the “seminar room” variety, not the “rule-of-thumb” kind. It is an economics that recognizes its limitations and knows that the right message depends on the context.

That's right. Contrary to what Mankiw might say, there is much that students can learn about the financial crisis which would come from a different approach to introductory economics. Let's not speak so condescendingly of them!

Mankiw on the Consensus View Within Economics

Mankiw often likes to tout the view that there is vast agreement in the economics profession over most of the major economic issues. In chapter 2 of his textbook, for example, he argues that while most economists differ on normative claims in economics (i.e., what ought to happen), there is widespread agreement about its positive claims (i.e., what actually happens). He often cites various polls of economists in support of his argument. His most recent cite is here.  Another one here. Another one here....  It's almost as if he's not only trying to convince the public that economists largely agree on everything; he's trying to convince himself.  

There are, however, a few problems with how his argument is made.  

1. It's easy, though misleading, to cite sentence-long themes framed in a specific way and obtain consensus - it's much harder to dig into the details and find the same level of agreement.   For example, the statement "If the federal budget is to be balanced, it should be done over the business cycle rather than yearly" might get 85% support among polled economists, but one wonders whether, if the question were asked "how" or via "what mechanism" etc., the agreement would be drastically reduced.  This piece by Arindrajit Dube leads us to reflect on the idea that if the survey questions were framed differently or according to greater detail, they might reflect a growing consensus within economics that minimum wages do not necessarily have a significantly negative impact on employment. Other examples abound.

2. It's easy to get consensus if you only ask people who agree with you. I'm not suggesting that no members of the AEA or other academic economists polled have any heterodox inclinations (for example John Kenneth Galbraith was actually president of the AEA in 1972), but when the vast majority of economics departments and its institutions are run by and for mainstream economics, and when heterodox economists are so marginalized from the profession that they may not even be a part of mainstream professional institutions, you are bound to get the mainstream response.   All you've really proven is that on some things there exists agreement among mainstream academic economists only.    Additionally, if you only ask American economists, the skew is even greater because the United States has some of the least academic support for heterodox thought.   A good example of this fact is the story of how a whole heterodox department is forced to close its doors. Expand this to business economists and financial economics experts who may not call themselves 'academic economists' but who, nevertheless, are prominently featured in policy circles and mainstream media outlets, and the skew could get even wider.

3. Perhaps the most important point is that agreement does not make you right. When groupthink is set as a priority above seeking the truth, that in and of itself suggests there is a fundamental problem within the economic profession. And that, at the end of the day, is the direction Mankiw would have mainstream economics continue to travel - a conglomeration of brainwashed groupthinkers who close their eyes to any alternative dialog that might challenge their worldview.