Government

ECONOMIC ANALYSIS: Why economists don't get invited to parties

April 2, 2007

To borrow a phrase from religion, there are among us a number of people who can be called "supermarket economists." These are individuals who pick and choose the portions of economic doctrine they like, and ignore the conclusions of economics that do not suit their purposes. In public discourse, supermarket economists so greatly outnumber genuine economists that when one first encounters the real animal-usually in a college classroom-the reaction can be a mixture of shock and disappointment.

Maybe that's why they don't often let us out in public.

Economists hold some views that make them more than a little unpopular in polite circles. Want to make sure you don't get invited back to parties? Try some of these arguments out on your friends.

A lot has been written in recent weeks over the uptick in retail gasoline prices. Yes, gasoline prices have moved sharply upward, in several measured surges, since their low of 18 months ago. But it makes no more sense to now begin a Federal Trade Commission investigation into gas prices, or to implement a temporary halt in the state excise tax on gasoline, than it would have two years ago when prices fell a similar amount.

In fact, in scenarios like this, economists actually like higher prices. They are the most effective way to communicate information about the relative scarcity in the supply of oil to those of us who use it. That information comes with a certain amount of pain, to be sure. But how many of us are going to find ways to use less gas when it costs 79 cents a gallon?

Many of economists' most unpopular points of view have to do with taxation. There's nothing quite so popular as a tax that we feel someone else pays, nor as unpopular as one we ourselves pay. Thus, our tax law is full of special treatment for certain commodities, like food, medicine and even the Internet. Many interest groups have made it their primary goal to get whatever it is that constitutes their basic activity-whether it is drilling for oil or drilling teeth-exempt from taxation.

Economists have a predictably dour outlook on all these efforts. We believe in a tax principle known as horizontal equity. Identical activities should be taxed identically. Application of this principle effectively broadens the base for almost every tax on the books. Sales taxes should not only apply to the Internet, but they should apply to food, medicine and services as well. Interest income from municipal bonds should be taxed equally as those from private sources, and so on, for countless other tax shelters.

In fact, the ideal tax, from an economist's point of view, is one we cannot escape from. Loopholes and exemptions effectively promote some kinds of activities over others, and distort the patterns of spending and investment that they would earn on their own merits.

That's why many economists look more favorably on inheritance taxes than, say, the U.S. House of Representatives, which voted by a huge majority to eliminate the federal tax. The problem with income taxes is that they discourage work, by reducing the rewards we receive from our labor. That makes the economic pie we share smaller. But a tax on inherited wealth? One could argue that a higher tax would make the younger generation actually work harder.

The basic point is that the tax system shouldn't be about picking winners and losers, but should simply raise the funds needed to support the activities of government. Yet picking winners and losers is what elective politics is all about, which probably explains why few economists have proved popular enough to make it into elected office.

And so we ply our trade at cocktail parties, if anyone would be good enough to invite us.



Barkey is an economist and director of economic and policy study at the College of Business, Ball State University. His column appears weekly. He can be reached by e-mail at pbarkey@ibj.com.
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