To me, the thing to note about the economists–the Mankiws, the Lucases, the Beckers, the Barros, and all the rest–who have pledged allegiance to the Republican Party this year is how much they hagve stopped thinking like economists. When an economist thinks about American health care, he or she begins with what we give up and what we get: we give up $1 trillion dollars in real resources a year relative to other countries, and we get… what?… not much. But this is not how Mankiw or Becker approach it. When an economist thinks about nominal demand, he or she thinks about (a) the money stock and (b) the determinants of velocity–the incentives people have to spend their money quickly or to tend to hoard it. But that is not how Lucas or Barro think when they claim that fiscal policy cannot affect nominal demand.
I still remember being convinced by Rick Ericson when I had just turned 18 that thinking like an economist required that one always pay attention to three key principles: market equilibrium, individuals responding to incentives, cost-benefit tradeoffs. And I remember him convincing me that if you kept those three principles in mind always you could do a much better job in understanding the world. I thought that Chicago-School economists believed in these principles too. But someone–was it Mark Lemley?–told me more recently that intellectual principles almost always weigh much less in the balance than political allegiances.
A good one!