Let’s find something we can agree on. The current economic and financial crises are bringing more and more ideas out of the woodwork, with an equal amount of disagreement as to their usefulness. Economists and pundits abound with suggestions for what ails us and what needs to be done. In economics widespread disagreement occurs when there are differences in scientific judgments or differences in values.
Just as in the physical sciences, economists will disagree about the validity of an economic theory or interpret data differently. Additionally, economists differ because they have different values – preferring, for example, a greater distribution of income over a more efficient marketplace.
In the current crisis investment has slowed dramatically. Some economists see a change in the tax code, eliminating the tax on income and replacing with consumption taxes, as the best way to increase saving, and thereby investment.
But economists will differ for scientific and personal reasons on this issue. First, many say savings is insensitive to taxes and therefore would do little to spur investment. Taxes matter, but not that much. These economists differ not for ideological reasons, but simply on what they see in the data.
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Second, some economists see such a tax change as benefiting one segment of society over another, and therefore oppose the policy on personal, rather than scientific grounds.
But there is more agreement among economists than people think. For example, almost all economists believe that rent control adversely affects the availability and quality of housing.
A key economic policy favored by the vast majority of economists is the free trade of goods and services. In Adam Smith's seminal book of the eighteenth century, An Inquiry into the Nature and Causes of the Wealth of Nations, he writes of the benefit to all through specialization and trade.
Similarly, David Ricardo's 1817 book Principles of Political Economy and Taxation, outlines the theory of comparative advantage which supports greater trade and argues against restrictions such as tariffs. Trade makes everyone better off because it allows people to specialize in those activities in which they have a advantage in both skill and costs.
As a student of the Great Depression, current Federal Reserve Chairman Ben Bernanke knows well that the Smoot-Hawley Tariff Act of 1930 significantly contributed to the economic stagnation of the subsequent decade by slowing trade.
We can therefore agree today that more free trade will go a long way to benefit ours and others’ economic situation. To that end, a resumption of trade talks through the World Trade Organization is needed today.
At a 2001 conference in Doha, Qatar, WTO member governments agreed to launch new negotiations for lower trade barriers. Unfortunately, no significant reductions have been achieved seven years later. Fortunately now, Daniel Price, Assistant to the President for International Economic Affairs reported progress on these negotiations at the most recent meetings this past month.
There is nothing like a good economic downturn to get people agreeing on basic economic principles again.
Since 2000, Peter R. Crabb has been a professor of finance and economics at Northwest Nazarene University in Nampa. He earned his doctorate in international and financial economics from the University of Oregon.