Why economists disagree A Macroeconomic Policy Roundtable

“If the price of beef goes up and nothing else changes, people will buy less beef.” This is a principle on which all economists agree. It includes several assumptions and abstractions. The utility for consumers, per dollar spent on beef at different quantities, has correctly been determined and is constant. Maximizing utility is an incentive for consumers. Consumers make rational decisions.

When it comes to predicting if people will buy less beef in the future, economists will disagree. Keynes roughly said “The only reason economists make predictions is to make astrologists look good.”

Why economists disagree Different Time Periods Different Assumptions Different Economic Theories Different Values

Different Time Periods One economist might state that the current policy of the government will lead to inflation. Another might disagree. Both could be right if they are talking about the effects of the policy on inflation at different times – for example six months from now compared with two years from now, or thirty.

Different Assumptions Because an economy is a complex system, it is often hard to predict the effects of a particular policy or event. Therefore, to be able to make predictions, economists must make certain assumptions. One economist might assume the federal budget deficit will become larger next year. Another might not. These different assumptions could be the result of their assumptions about projected economic growth, tax revenue, and or government spending.

Different Economic Theories Economists have yet to settle a number of important questions, especially those concerning macroeconomics. Macroeconomics deals with the behavior of the economy as a whole, or large aggregate subdivisions of it, and how to influence the behavior. Economists have several different theories or explanations about what influences macro behavior. “Supply will create Demand.” “Business Cycles are driven by unanticipated changes in Demand and Inventory.” Post-Keynesians Theorists, Neo-Classical Theorists, Public Choice Theorists, Rational Expectations and the Efficient Market Hypothesis, Multiple Equilibrium Theorists, Globalization’s International Flows and Economies of Scale, to name a few. Until these theories are reconciled or until one of them is widely accepted as best; economists will disagree on macroeconomic questions, let alone predicting future outcomes, because the economists are using different theories.

Different Values Statements by economists often contain more than just analysis and a prediction about results of a particular policy. They recommend a policy because the results agree with their own values – the results they prefer. Disagreements are often about which outcome economists prefer. The economic policies they recommend are determined by their preferred outcomes.