Topic: Agree or Disagree: 10 macro economic policies quiz

[Citizen Skeptic]

Having my knowledge of macroeconomic policy insulted by teethering, I thought I would look for a quiz and check my knowledge.

Here's the quiz along with my answers. How did I do?


AGREE 1. Rent control limits the availability of affordable housing.

AGREE 2. Tariffs reduce economic welfare.

AGREE 3. Outsourcing to foreign countries should not be restricted.

AGREE 4. Floating exchange rates are effective international monetary policy.

AGREE 5. We should eliminate agricultural subsidies.

AGREE 6. The gap between Social Security funds and expenditures will become unsustainably large under current policy.

AGREE 7. Large federal deficits adversely affect the economy.

DISAGREE 8. Welfare should be administered as a negative income tax.

AGREE 9. The minimum wage increases unemployment among unskilled workers.

DISAGREE 10. Taxes and permits are a better way to control pollution than pollution ceilings.

I'll post the answers after we collect a few players. The questions and answers are from Principles of Economics by N. Gregory Mankiw. If there are any disputes, please take it up with him. Or perhaps we can impose on DrMeg378 to be the arbitrator.

[Karyn]

I'm answering these based on what I remember from macroeconomics, not based on what I think actually works in real life.  Much like how you learn physics, I think the way macroeconomics is taught greatly oversimplifies everything, leading to extremely bad ability to predict or measure anything.

Agree 1. Rent control limits the availability of affordable housing.

Agree 2. Tariffs reduce economic welfare.

Agree 3. Outsourcing to foreign countries should not be restricted.

Agree 4. Floating exchange rates are effective international monetary policy.

Agree 5. We should eliminate agricultural subsidies.

Agree 6. The gap between Social Security funds and expenditures will become unsustainably large under current policy.

Disagree 7. Large federal deficits adversely affect the economy.

Disagree 8. Welfare should be administered as a negative income tax. (I'm not sure I understand this question)

Agree 9. The minimum wage increases unemployment among unskilled workers.

Disagree 10. Taxes and permits are a better way to control pollution than pollution ceilings.

[Citizen Skeptic]

I'm answering these based on what I remember from macroeconomics, not based on what I think actually works in real life. 

I answered based on macro theory too. Some I think work, some I think don't and some I have no clue.

In practice, the golden rule always applies.

[Johnny Slick]

Hmm. 3 is at least partially normative and thus not really a question you get to objectively answer "agree" or "disagree". My micro-econ book said that for 9, it may be true but the effects are very, very small unless the minimum wage is very high (far higher than any minimum wage in the United States at the moment).

[Citizen Skeptic]

You hit on one of the problems I thought about before deciding whether to make it true/false or agree/disagree. I ended up with agree/disagree because of how the policy propositions were presented to the economists who responded. To add to what I responded to Karyn, the policies may in reality not be true, but all of those policies have a strong consensus one way or the other.

[Dirty J. Martini]

I'll start by saying I clearly no nothing about economics. But the questions reminded me of a horoscope, a little. I'm curious about the following:

AGREE 6. The gap between Social Security funds and expenditures will become unsustainably large under current policy.

Well sure, but how long will it take? And "can/should it be fixed?" is really the question. It's like saying you predict there will be an earthquake in California in the next week. It's guaranteed to happen, but if you can't tell where in California or how big, it doesn't matter whether it's true or not.

AGREE 9. The minimum wage increases unemployment among unskilled workers.

I can believe that, but like the previous one, it doesn't give you any useful information. Is it better for more people to have jobs if none of them can pay for anything with their wages? Or is it better to have a smaller number gainfully employed?

[Citizen Skeptic]

The policy propositions are vague in terms of numbers. But the social security prediction was based on a 50 year horizon. Which is the same as an indeterminate one. So if 50 years makes a difference to your answer, give it a flip.

I think that after I post the answers there will be quite a fun discussion. Some of these topics weren't even around when I was in school (carbon trading) and the negative tax was never discussed. Taxes were just discussed in very general macro terms. I will admit that I was surprised by quite a few of them.

[Ah.hell]

AGREE 1. Rent control limits the availability of affordable housing.

AGREE 2. Tariffs reduce economic welfare.

AGREE 3. Outsourcing to foreign countries should not be restricted.

No Idea 4. Floating exchange rates are effective international monetary policy.

AGREE 5. We should eliminate agricultural subsidies.

AGREE 6. The gap between Social Security funds and expenditures will become unsustainably large under current policy.

AGREE 7. Large federal deficits adversely affect the economy.

No idea 8. Welfare should be administered as a negative income tax.

AGREE 9. The minimum wage increases unemployment among unskilled workers.

No Idea 10. Taxes and permits are a better way to control pollution than pollution ceilings.

I'll post the answers after we collect a few players. The questions and answers are from Principles of Economics by N. Gregory Mankiw. If there are any disputes, please take it up with him. Or perhaps we can impose on DrMeg378 to be the arbitrator.

I've answered soley based on my opinion and the 1 college economics class I had to take.  I've never been able to wrap my head around monetary policy. 

[Citizen Skeptic]

I've never been able to wrap my head around monetary policy. The policy that would make sense to me from a purely accounting point of view is far from tweaking interest rates and bank reserves. Do you think anyone really does?

[DRmeg378]

Cool. I'll comment on these after more people have answered. There are a lot of assumptions built in to many of those statements.

Just to be clear. Where did you get the statements from, and were they all stated as truths?

Also, I don't like Mankiw. But I don't think anyone in the profession does, honestly

[Citizen Skeptic]

Cool. I'll comment on these after more people have answered. There are a lot of assumptions built in to many of those statements.

Just to be clear. Where did you get the statements from, and were they all stated as truths?

Also, I don't like Mankiw. But I don't think anyone in the profession does, honestly

I originally wanted to make a FACT or CRAP: Econ Edition thread but that implies that the propositions could be answered as true/false which I think is why the article posed the propositions as agree/disagree. Presumably if there is agreement, it is likely true, but it was not stated that way. The article included a table from the book that was from a survey of economists and gave numbers for the percentage of economists who agree or disagree. There was a clear majority opinion of all of the policy proposals.

When it comes time to tally the scores, I'm going to propose a couple of options.

Also, I obviously read the article before I put the quiz together, so I answered the questions like I would have before reading the article. Otherwise, I would have gotten them all right, and I didn't.

[Karyn]

(click to show/hide)

Cool. I'll comment on these after more people have answered. There are a lot of assumptions built in to many of those statements.

Just to be clear. Where did you get the statements from, and were they all stated as truths?

Also, I don't like Mankiw. But I don't think anyone in the profession does, honestly

I originally wanted to make a FACT or CRAP: Econ Edition thread but that implies that the propositions could be answered as true/false which I think is why the article posed the propositions as agree/disagree. Presumably if there is agreement, it is likely true, but it was not stated that way. The article included a table from the book that was from a survey of economists and gave numbers for the percentage of economists who agree or disagree. There was a clear majority opinion of all of the policy proposals.

When it comes time to tally the scores, I'm going to propose a couple of options.

Also, I obviously read the article before I put the quiz together, so I answered the questions like I would have before reading the article. Otherwise, I would have gotten them all right, and I didn't.

That actually changes my thoughts on how I would answer some of these.  In my mind, there is 1. What is taught in Econ 101. 2. What actual economists think. and 3. What I think (as an uneducated rube).  Most of my recent education in economics comes from the very libertarian minded economists at EconTalk, and my boss, who is a data manipulating conservative, but also a PhD in Economics (which he probably received in the 50s or 60s).  In practice, I don't generally agree with their observations, even though they tend to sound nice logically.  It's probably the equivalent of sticking my fingers in my ears.  But even when Billy's optimum financial procurement of goods is 8 pizzas and 3 pepsis, I'm pretty sure Billy is going to buy less pizzas and more pepsis.

[Johnny Slick]

[AGREE 1. Rent control limits the availability of affordable housing. - I could post "disagree" and quibble that what it does is it limits the availability of housing, period, but sure, this has been pretty well established in the literature with lots and lots of real-world examples.

DISAGREE 2. Tariffs reduce economic welfare. - By and large, sure they do; however, if another country chose to heavily subsidize a product (for example, the way the US subsidizes corn) putting a tariff on that same product could very well counter-act some of the effect of the subsidy and allow local companies to compete with international ones. I probably agree 99% with the original statement if you have to put things into black and white, it gets... black.

DISAGREE 3. Outsourcing to foreign countries should not be restricted. - This is a normative and not a pragmatic statement, as noted earlier. If another country allowed slavery, I'd like to think that we would have restrictions against US companies dealing with said country.

AGREE 4. Floating exchange rates are effective international monetary policy. - I know zip about international monetary policy.

AGREE 5. We should eliminate agricultural subsidies. - See my note on #2! They're more trouble than they're worth IMO, create issues of their own (such as agriculture attempting to sell their surplus into other industries, or by adding extra food to... food like HFCS).

AGREE 6. The gap between Social Security funds and expenditures will become unsustainably large under current policy. - Agree, but many, many years down the line, and it wouldn't take a huge shift in the budget to accommodate this.

DISAGREE 7. Large federal deficits adversely affect the economy. - Define "large". The USA has had a pretty big deficit for years and has been operating just fine. I'd go ahead and opine that much of the time, a large federal deficit is caused by a weak economy, not the other way around.

DISAGREE 8. Welfare should be administered as a negative income tax. - I think the way welfare is administered now is fine, thanks. It's a government program and as such has lots and lots of checks and balances to guard against abuse. The fact that there is still abuse is not a good reason to just throw out all the checks and balances.

DISAGREE 9. The minimum wage increases unemployment among unskilled workers. - Not in the USA, no, and not always. Yes, theoretically minimum wages are price floors on labor and see #1, but in practice if the floor is already below the lowest asking price for labor, the effect is negligible and therefore 9 is sometimes false.

DISAGREE 10. Taxes and permits are a better way to control pollution than pollution ceilings. - I don't get what Mankiw is trying to say here, but cap and trade worked out fantastically well for the acid rain issue and that involves pollution ceilings (and also taxes and permits).

[Citizen Skeptic]

That actually changes my thoughts on how I would answer some of these.  In my mind, there is 1. What is taught in Econ 101. 2. What actual economists think. and 3. What I think (as an uneducated rube).  Most of my recent education in economics comes from the very libertarian minded economists at EconTalk, and my boss, who is a data manipulating conservative, but also a PhD in Economics (which he probably received in the 50s or 60s).  In practice, I don't generally agree with their observations, even though they tend to sound nice logically.  It's probably the equivalent of sticking my fingers in my ears.  But even when Billy's optimum financial procurement of goods is 8 pizzas and 3 pepsis, I'm pretty sure Billy is going to buy less pizzas and more pepsis.

Feel free to change your answers.

My learning style is to understand how things work, or at least how they are thought to work. I don't do well with "the data says" without the explanation of why it says whatever. Which is one of the reasons I have a hard time understanding/buying into some macro economic theories. In the case of macro, I have to be able to relate it to micro principles or corporate finace to really get it.

[Citizen Skeptic]

OK, time for the answers. Here's the good news - economists agree with all of these propositions so if you disagreed, you can mark that one wrong - sort of. The percentage with each statement is the percentage of economists polled who agree.

http://www.realclearmarkets.com/charts/10_things_economists_believe-44.html

93% Rent control limits quantity/quality of housing

93% Tariffs and quotas reduce economic welfare

90% The United States should not restrict employers from outsourcing work to foreign countries.

90% Floating exchange rates are effective international monetary policy

85% The United States should eliminate agricultural subsidies

85% The gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged

83% Large federal deficits adversely affect the economy

79% Welfare should be administered as a negative income tax

79% A minimum wage increases unemployment among young and unskilled workers

78% Taxes and permits are a better way to control pollution than pollution ceilings

I got 8/10.

I think I understand the thinking behind a negative income tax - gets the money to the point of need efficiently?

I don't get the tax and permits to control pollution. As far as I know, only caps have worked. I think I read the carbon trading schemes have pretty much died.

I'm also not sure how to quantify exactly what agreement means. There has to be a level of confidence as part of the statement - "x percent agree with y percent of confidence." I think this is why the article uses the word "believe" instead of "know." Which is also the reason I was not able to make this a fact or crap style quiz. I was surprised there wasn't 99% or 100% agreementn on some of these.