Why economists disagree? You may have heard during discussions about economics that one economist is a free market supporter, and the other one is the advocate for market regulations. What does it mean? Does it mean economics is just a bunch of opinions, and we cannot learn anything from it? Why does two people, both experts in their field, are saying the opposite things?

▪ Why do economists disagree on many economic issues?

First of all, there is no free market economics or regulated market economics. Economics doesn’t tell you what you should do and if market should be free or not. Economics – as a social science – studies, tries to understand and describe reality. Any science’ ultimate goal is to seek and hopefully find the truth. Different schools of economics exist not due to different opinions on economic policies, but due to different methodologies and sometimes, different conclusions caused by using different methodologies.

Having said that, there are “free-market” or “regulated market” economists. Their personal views are, that the market shouldn’t or should be regulated. Their views may be based on conclusions from their scientific work, but they are still their views.

▪ Let’s give an example

The economics tells us, that when you set a maximum price on cars way below their market price, than (all other things equal) there will be a car shortage. There will be more people willing to buy, and fewer people willing to produce, so the demand would be greater than the supply. It is merely a description of reality.

Now, an economist – who knows this – may say:

“Hey, we shouldn’t set maximum prices for cars, because there would be a shortage, and I like cars”.

The other economist may agree, that there would be in fact car shortage, but may have a different opinion on the subject:

“Car shortages are precisely the reason we should set maximum price for cars. There should be fewer cars, and this is a best way to do it”.

▪ Science vs opinions

As we see, two economist can agree on the facts, but have different views, and thus propose different solutions. They are not wrong as economists, they haven’t made “a mistake” by giving their personal opinions on the subject. They just have different goals. This is what distinguish opinions from economics. Economics doesn’t study goals. Economics studies the means. In many cases, economists must assume a goal, to check if given means are the best way to achieve it. For the economist, the goal is an angle from which he should look at the problem. Its given data. He doesn’t analyze it.

Lets assume, that politicians ask the economists what should they do. Economists would be helpless, until they hear what goals the politicians want to achieve. And the goals can be different. For example, the goal may be to achieve highest possible market efficiency. But it also may be a different goal – to reduce inequality in the society, to help the poor and so on. Knowing the goals, economists may suggest the means which would allow to achieve this goal most effectively. In this way, economic policies are created. For example, the economic policy that proposes that the best way to provide growth and development in a particular country is to not regulate the market. They are based on economics, but they are not economics. They are economic policies, because they propose what should be done, and economics doesn’t do that.

As we see, debates about goals are beyond economics. In such debates we can use arguments from economics, for example: “this action would have that consequence”, but judging this consequence as good or as bad is beyond economics.

▪ Science vs science?

But what if the difference isn’t in opinions, but in facts? Lets get back to the car shortages example:

What if one of the economists claimed, that there would be car shortages, and the other, that there wouldn’t be car shortages. Well, one of them would be wrong, because there either would be a car shortage or there wouldn’t be (all other things equal). Surprisingly, there are debates in such matters, for example, about minimum wage. Why is that?

We can go back to the different methodologies mentioned before. Austrian school of economic thought uses a method of logical deduction from axioms (like in mathematics) which we discussed already in our video “The Methodology of the Austrian School of Economics”, whereas neoclassical economics rely more on empiricism.

So lets assume, that one economist, who disagrees with the theory, says this:

“Guys, I don’t think there would be shortages, I think we can’t know before we will test it, lets do an experiment, and give it a go. If there would be shortages I’ll admit that I was wrong”.

When you listen to economic experts, can you differentiate between science and their own views?

The thing is that the claim about shortages in our example is under condition, that all other things are equal. Economists include this condition, to focus on consequences of a particular action, so they “freeze” everything else. Meanwhile, in the real economy, these “other things” are never equal. Supply of cars and the demand for them can change for many, many reasons. The maximum price will be among them, but it wouldn’t be the only factor. Thus, its very hard to do empirical research to confirm or deny the theory, that have a condition “all other things equal”.

We can’t just put the economy in the lab and separate it from other factors. We can’t re-run the experiment in the same conditions, because when we finish one experiment, the conditions will already be different. So, if a researcher would like to conduct an empirical research, he would have to analyze every factor, that could possibly influence the supply and demand for cars. It’s very difficult and prone to mistakes. You can’t just say: “hey, we checked the market before introduction maximum price, and then 3 months after introduction, and we see no shortages, so that settles it”. No, this settles nothing, because you haven’t considered a multitude of factors, that had also influenced both supply and demand during this time.

▪ Summary

Nevertheless, this kind of debates makes economics better, because even though one side is wrong, they get the economists to think thighs through once again, which is good for getting to the truth. The problem begins, when people confuse economics with economists opinions or views. Not everything an economic expert says on TV is economics. Some of it are his views, and that’s ok. But the viewer should know the difference, and know what is actually economics in what he just said. And to the rest of what he said, the viewer can proudly say, arguing with the TV: “Yeah, well, that’s just, like, your opinion, man”.

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