Greg Mankiw provides a textbook exposition for the distinctions between what he calls "left" and "right" economists. My instinctive comments are in italics.
- The right sees large deadweight losses associated with taxation
and, therefore, is worried about the growth of government as a share in
the economy. The left sees smaller elasticities of supply and demand
and, therefore, is less worried about the distortionary effect of
taxes. This suggests that DWL are the main reason why some economists are worried by the growth of government, which isn't the case. I'm not sure how we'd measure DWL so don't really think this is an empirical issue. I don't think anyone rejects the Ramsey rule in principle (although they might in practice).
- The right sees externalities as an occasional market failure that calls for government intervention, but sees this as relatively rare exception to the general rule that markets lead to efficient allocations. The left sees externalities as more pervasive. I see externalities as pervasive, and this is one of the reasons why intervention is counterproductive. It is simply impossible to justify intervention on the grounds of externalities, due to their ubiquity.
- The right sees competition as a pervasive feature of the economy and market power as typically limited both in magnitude and duration. The left sees large corporations with substantial degrees of monopoly power that need to be checked by active antitrust policy. The term "market power" is an oxymoron, and since regulation is typically brought about by firms seeking protection there is no reason to suppose that antitrust policy will lead to more competitive outcomes. I'd also add that competition must be defined in terms of rivalrous process, (and therefore contestibility), and not in terms of static concentration rates.
- The right sees people as largely rational, doing the best the can given the constraints they face. The left sees people making systematic errors and believe that it is the government role’s to protect people from their own mistakes. I think people respond to incentives, but do not possess the "strict rationality" assumed by neoclassical economics. Even though people make mistakes, we also need to factor in their particular knowledge of time and place (including knowledge over their own preferences) that government simply cannot replicate. There is no objective way to define whether a "mistake" is merely an action that others deem bad, and that's no basis for intervention.
- The right sees government as a terribly
inefficient mechanism for allocating resources, subject to
special-interest politics at best and rampant corruption at worst. The
left sees government as the main institution that can counterbalance
the effects of the all-too-powerful marketplace. The first half of this paragraph is a factual statement. The second half is an assertion. It's an unfair distinction because these aren't two competing viewpoints. Most economists (accept Chicagoans like Becker and Wittman) would accept the inefficiency and existence of special interests. There is far less consensus that the marketplace is "all-too-powerful". What does that even mean?
- There is one last issue that divides the right and the left—perhaps the most important one. That concerns the issue of income distribution. Is the market-based distribution of income fair or unfair, and if unfair, what should the government do about it? That is such a big topic that I will devote the entire next lecture to it. This isn't an economic issue, it's an ethical one. Economics provides a means to ground our ethical concerns on solid grounding, but the notion of "fairness" is irrelevant since it's subjective.
What should we conclude from this? That the textbook distinction between "left" and "right" economics is incomplete, and that there's an alternative that is not neoclassical economics, but economics nevertheless. If only it had a name...