Over the years Irwin Stelzer has been one of my favorite economists. He is a direct, yet graceful, writer, a clear thinker, and an analyst possessing large amounts of both humility and charitability. I like to think of him as the anti-Krugman.
Recently, Stelzer sat down with for an episode of Conversation with Bill Kristol and if you have even a passing interest in economics, the interview is well worth your time. Some highlights:
At the end of the day, markets and competition work. Unfortunately, we don’t have perfect markets or perfect competition. So, in the real world, what you are dealing with is inclinations, tendencies. You’re not dealing with hard and fast conclusions – as you can see from the mess we’re in in healthcare and almost every other thing you mention.
This is one of Stelzer’s recurring themes: That economics matters, but is influenced in ways both large and small by non-economic factors. Here he is explaining how he was awoken to this fact by Irving Kristol:
I wanted to get back to New York about as fast as I could. And then, I learned in business that a lot of what I learned in economics is true. If you reward people every quarter, they’re not going to make any investments because they are going to want to maximize whatever they produce in a quarter. So I think it was a good combination. But the third part, and this is not to flatter you, but at some point in the ‘80s, when I had sold my business – because I spent 25 years doing wage reviews for hundreds of economists, each of whom had his own theory of wages, and I decided that’s not for me anymore – your father said, “Why don’t you come down – you’ve made enough money – come down to Washington. I will get you at the AEI and you’ll really thrive there.” So I went down with a whole bunch of free-market stuff. I was going to stay a year. And then I ran into your father and your mother, all of whom questioned everything I said and introduced what I considered non-economic considerations. And I said “Oh, I don’t want this slippery slope; I like really what I got. I know if I raise the price, the amount of demand is going to go down. I’m happy with that.” And then I had to think a lot about it and I emerged from that really quite different from what I went in. So it was a combination of the three things: education, running a business, and then getting exposed to a whole different way of thinking about poor people – there’s deserving poor, there’s undeserving poor – and that changed me.
Easily my favorite line of the interview is this koan, which ought to be tatooed on the back of every economist’s right hand: “It is important as an economist to internalize externalities.”
