August 19, 2004


World Exclusive: Economists Agree (Rob Norton, September/October 2004, Corporate Board Member)

[O]ne of the little-known secrets about economics is that on most questions, economists agree quite a bit. And nowhere is the consensus stronger than on the benefits of globalization.

Dan Fuller and Doris Geide-Stevenson, both professors at Weber State University in Ogden, Utah, asked members of the American Economic Association whether they agreed, mainly agreed, or disagreed with 44 propositions about the economy. Many major questions of policy that seem widely disputed turned out to be anything but. These days, for instance, some economists who support the Bush administration argue that a large federal budget deficit has no adverse effect on the economy. A substantial consensus, however—80% of the 300 who responded to Fuller and Geide-Stevenson—begs to differ. Similarly, some liberal economists reject the idea that there is a long-run “natural rate of unemployment” below which the economy is likely to generate inflation. The study, which was published in the fall 2003 issue of The Journal of Economic Education, found that a 68% majority thinks there is indeed such a natural rate.

Substantial majorities support some propositions that favor market forces over government intervention. Economists largely agree, says the study, that the Federal Reserve should focus on keeping inflation low rather than trying to achieve other goals, such as full employment or economic growth. Most believe that the minimum wage can increase unemployment among young and unskilled workers. But economists also think laissez-faire has its limits. Solid majorities agree that income redistribution is a legitimate role for government and that antitrust laws should be vigorously enforced to reduce monopoly power.

The area in which economists concur most broadly, according to Fuller and Geide-Stevenson, is international economics and globalization. The propositions that produced the strongest consensus included:

• Tariffs and import quotas usually reduce the general welfare of society.

• Increasing globalization of the economy does not threaten national sovereignty in the area of environmental and labor standards.

• The increasing inequality in U.S. income distribution is not due primarily to the benefits and pressures of a global economy.

That doesn't leave much of the Democratic platform standing.

Posted by Orrin Judd at August 19, 2004 9:40 AM

When a majority of experts agree on something, it becomes "Conventional Wisdom", and therefore, probably wrong - according to OJ. Notice the wording : "The increasing inequality in U.S. income distribution is not due primarily to the benefits and pressures of a global economy."

Not "primarily" - so global economics does have some role to play in the increasinc inequality of income distribution. Which makes sense - our lowest paid labor segments are losing out to cheaper foreign labor, whereas our wealthiest segments are riding the wave of asset inflation brought on by the expansion of US money and debt which ends up flowing into US asset markets.

Posted by: Robert Duquette at August 19, 2004 10:34 AM


The CW is that free trade hurts the economy, that's why Kerry's running as a protectionist. His is the economics of the NY Times editorial page, where Paul Krugman ceased to believe in real economics several years ago.

Posted by: oj at August 19, 2004 10:41 AM

This article demonstrates that economics is in fact not a science at all, but a pseudoscience. In real science, there is not such thing as "consensus" and truth is not arrived at through polling.

Posted by: AML at August 19, 2004 12:20 PM


Surely you jest.

Posted by: Peter B at August 19, 2004 1:10 PM

The only economic "poll" that counts is the market. Where the market is concerned, when the majority agrees on something, it is time to do the opposite.

Posted by: Robert Duquette at August 19, 2004 1:20 PM

For example, the majority of the market believes that you should not send me large sums of money in return for nothing. Ergo, Robert, I'll be expecting some checks in the mail.

Posted by: Timothy at August 19, 2004 1:23 PM


Of course it is.

Posted by: oj at August 19, 2004 1:28 PM

Timothy, on what exchange do the "Robert pays Timothy for nothing" futures trade? The contrarian rule of thumb only applies to tradeable markets.

Right now the majority believes that we are in a new equities bull market, and that higher prices for oil and gold are blips in a long term deflationary trend. So if you want to make money, short the S&P and go long gold and energy companies.

Posted by: Robert Duquette at August 19, 2004 2:18 PM

Here is Morningstar's summary of the (miserable) recent performance of gold and precious metal funds.

Contrarians get to be right, eventually, but usually go broke first.

Posted by: David Cohen at August 19, 2004 3:30 PM

David, why don't you look at their performance over the last 3 years? It is a volatile market, so you gotta be prepared for large swings. Over the next 4 years, these funds will outperform, to put it mildly.

Posted by: Robert Duquette at August 19, 2004 4:13 PM

Gold's moment is always right around the corner....

Posted by: oj at August 19, 2004 4:20 PM

OJ, when you jump on the gold bandwagon it will be time to sell.

Posted by: Robert Duquette at August 19, 2004 5:03 PM

The Family Judd was home-invaded at gunpoint in 1979. I begged them not to use the insurance settlement to replace their lost gold and silver but to wait a few years while prices imploded. They didn't listen either.

Posted by: oj at August 19, 2004 5:23 PM

Gold did implode. Mines went bust. Exploration projects dried up. Capacity waned. Central banks sold their hordes. Now there is a shortage of supply to demand. The cycle repeats.

Posted by: Robert Duquette at August 19, 2004 5:28 PM

Robert: The chart I linked has 3 year and 5 year returns. The 3 year total return is just under 30%, which does beat the 5 year return, which is a little better than 16%.

Posted by: David Cohen at August 19, 2004 8:36 PM

OJ, miners are pouring money into their properties since the market bottomed in 2002. That's what happens in the early stages of a bull market.

Posted by: Robert Duquette at August 20, 2004 4:13 AM

When a commodity hits rock bottom--and stays there for decades--it encourages people to spend tons of money and effort searching for more of it? Whose economic theory is that?

The real preoblem is that with modern techniques you just can't help finding more and more of the stuff.

Posted by: oj at August 20, 2004 8:19 AM

OJ, look at a long term gold chart. Gold bottomed in 2002, and is climbing again. It is in a bull market. All of the miners know this, they are eliminating their hedge books (forward selling of output, which increases profits in a falling market, but hinders profits in a rising market). Markets are cyclical, they go through bull and bear markets. Stop thinking linearly.

Contrary to your simple faith in technology, gold is a rare element, and it isn't lying around everywhere waiting to be found. Most of the easy to find (and cheap to mine) gold has been found. It has to be economical to mine at the expected price and in sufficient quantity to bother building a mine, and even then a new mine takes up to 5 years to put into production. Existing mines are being depleted, and new mines will require higher gold prices to bring them into production.

In short, production is decreasing, demand is increasing, which spells bull market.

Posted by: Robert Duquette at August 20, 2004 11:50 AM

It's a bubble, it went up when oil started going up due to war in the Middle East. There's plenty of oil, plenty of gold, and never any end of dupes to sell the futures of commodities to. Here's a handy rule of them: that which you see advertised on tv in low rent infomercials is, without fail, a scam. Gold ads run in rotation with hair growth miracle cures.

Posted by: oj at August 20, 2004 11:59 AM

Not to mention radio ads during righty talk shows, which I suppose just confirms our self-image.

Posted by: David Cohen at August 20, 2004 12:22 PM

We're getting a lot of "BUY GOLD NOW!" radio commercials out here in SoCal. The guy behind them has been referred to as "The Hal Lindsay of Gold Futures" for good reason.

Posted by: Ken at August 20, 2004 12:49 PM

OJ, don't they also hawk Real Estate investment schemes on late night TV?

Posted by: Robert Duquette at August 20, 2004 3:15 PM