Greg Mankiw: A Political Platform for Economists

In the NYT, Greg Mankiw presents an eight-point platform that presidential candidates should use to attract a majority of economists' votes. Here are the highlights:

1. Support free trade;
2. Oppose farm subsidies;
3. Leave oil companies and speculators alone;
4. Tax the use of energy;
5. Raise the retirement age;
6. Invite more skilled immigrants;
7. Liberalize drug policy; and
8. Raise funds for economic research.
   

I have a couple minor issues with his list. First, Mankiw writes that "[e]conomists are nearly unanimous in their support of an unfettered system of world trade." This is akin to saying that all economists support economic growth—it's true, but completely meaningless. Current world trade doesn't even remotely resemble that mythical beast known as "free trade." Economists disagree sharply about the best way to get from the current status of world trade to unfettered free trade. Would most economists support a drastic reduction in U.S. tariffs without an improved compensation mechanism for the domestic losers from trade? Possibly. I bet it would be close though.

Second, with regard to the oil market, Mankiw states that "most economists see nothing more sinister than the forces of global supply and demand at work." Maybe, but most economists know astonishingly little about the workings of the crude oil market. For example, most economists think the price of physical oil is determined by spot prices; this assumption underlies the entirety of their arguments. In reality, however, the price of most physical oil is determined explicitly by the futures market:

The declining liquidity of the physical base of the reference crudes and the narrowness of the spot market has caused many oil-exporting and oil-consuming countries to look for an alternative market to derive the price of the reference crude. The alternative was found in the futures market.

Easing up on speculators might win the votes of most economists, but that doesn't necessarily mean that those economists have any clue what they're talking about.