Politics

Mankiw as Voice of the Reagan Era

Greg Mankiw recently published an Op-Ed. in the New York Times that provides a good illustration of the unstated economic assumptions of the Reagan era, as described in previous posts.

The Op-Ed. is entitled “When the Scientist Is Also a Philosopher,” and it draws attention to the fact that economists’ work is “based not only on our understanding of how the world works, but also on our judgments about what makes a good society.” So: economists are both scientists, to the extent that they make falsifiable predictions about the economy; and political philosophers, in the sense that their work continues to be shaped by political and moral judgments in ways that natural scientists’ work is not. A fair enough point, as far as it goes.

But ironically, in the process of making this point, Mankiw illustrates something different. He shows the disparity between the relative sophistication of economics as a science and the relative lack of sophistication in many economists’ thinking as “political philosophers.” Mankiw’s credentials place him near the top of the economics profession in the United States. He can debate technical economic issues with a facility that few can match. But when he moves beyond these technical matters and into something like political philosophy, he loses that facility and appears blind to the unstated assumptions underlying his view of the economy.

In the central passage of the column, he writes the following:

In some ways, economics is like medicine two centuries ago. If you were ill at the beginning of the 19th century, a physician was your best bet, but his knowledge was so rudimentary that his remedies could easily make things worse rather than better. And so it is with economics today. That is why we economists should be sure to apply the principle “first, do no harm.”

This principle suggests that when people have voluntarily agreed upon an economic arrangement to their mutual benefit, that arrangement should be respected. (The main exception is when there are adverse effects on third parties — what economists call “negative externalities.”) As a result, when a policy is complex, hard to evaluate and disruptive of private transactions, there is good reason to be skeptical of it.

As I see it, the minimum wage and the Affordable Care Act are cases in point…

Mankiw’s argument here, the central argument of his Op-Ed., draws an analogy between a doctor confronted with a sick patient, and a government confronted with an economic problem. In Mankiw’s view, both the doctor and the government are confronted with a choice: act to provide a remedy, or take no action and decline to intervene?

In drawing this analogy, Mankiw appears unaware of a basic difference between a doctor confronted with a sick patient, and a government confronted with an economic problem: the government created the economic rules that resulted in the problem, while the doctor did not give the patient her illness. Mankiw assumes that the government, like a doctor encountering a new patient, has a choice between taking action and doing nothing at all. But to the extent that there is a private market, the government is already “intervening” in it at all times by enforcing the rules that give rise to and shape private economic transactions, such as the rules of property, contract, and criminal law.

In other words, Mankiw accepts what previous posts have presented as the basic economic assumptions of the Reagan era. He assumes that “private markets exist on their own, coming into being through the interactions between private actors, and then government is faced with a choice of whether or not to intervene in those markets.”

Once we question this assumption, it becomes difficult to make sense of Mankiw’s argument. Once we accept that the government put in place the rules that resulted in the economic problem, the government becomes like a doctor who has made her patient sick by, for example, prescribing a medication to which the patient is allergic. In this situation, what does it mean to “first, do no harm”? If the doctor sticks with the status quo and allows the patient to continue taking the medication, is this “doing no harm”? Clearly not. Even if we accept that “first, do no harm” should be our guiding principle, the doctor still has a responsibility to act in order to end or mitigate the harm that her earlier actions caused.

Similarly, before the passage of the Affordable Care Act, the U.S. government was responsible for the legal rules governing the economy in general and the health care system in particular. These rules resulted in millions of Americans lacking health coverage, and suffering the consequences of that lack. Even under the principle of “first, do no harm,” the government had a responsibility to act—to lessen the harm that it was already indirectly causing.

 

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3 thoughts on “Mankiw as Voice of the Reagan Era

  1. Pingback: Read this: Nicholas Bourbaki’s new blog on the humanities & the economy | The Kugelmass Episodes

  2. Pingback: What so few economists know, but nearly all the good legal scholars understand | Against the Logicians

  3. Pingback: David Brooks Is Trolling Paul Krugman | Against the Logicians

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