Against Justin Wolfers-ism

Is economics really simple or really complicated? As with most questions in the field, the answer seems to be, “it depends.” For too many economists, though, it depends in particular on their own politics.

The case against tariffs can be conveyed easily with a supply-and-demand chart. But don’t use that same model to show how high levels of immigration might put downward pressure on wages… such a simplistic framework can’t possibly convey the complex interactions of a modern economy. Anyone who has taken Econ 101 can make the case for a carbon tax as the efficient correction for a negative externality. But making the Econ 101 case against a minimum wage increase will get you laughed out of the room. Incredibly, the dismal science proves every time to be precisely as unyielding or as pliable as necessary to support the policy agenda of the Democratic Party and, perhaps more importantly, the sensibilities of a Davos Cocktail Party.

Justin Wolfers, a professor at the University of Michigan, personifies this dismal approach to the dismal science. I should say, I have never met Professor Wolfers and have no personal animus toward him. For all I know, he’s a great guy and a great teacher. But as a prominent public commentator and online personality, a teacher of Economics 101 at one of America’s largest universities, and the author of a widely used introductory textbook, he is the sort of economist whose approach matters in the public square and bears scrutiny. And that approach illustrates well what has gone wrong in economic policy debates.

The problem with trying to conduct economics unmoored from coherent principles is that it quickly falls apart, necessitating further departure from principle, leading to further crumbling. Wolfers has provided a good example over the past few weeks with his effort to make the case against tariffs through a case study of the Trump administration’s 20% tariff on washing machines, imposed in 2018. A 2020 analysis in the American Economic Review found that prices for washers and dryers both increased by 12%. Because consumers typically buy the units together, sellers spread the price increase across both and in fact the total price increase appeared to exceed 100% of the tariff impact.

“The 2018 tariff hike on washing machines was an impressively destructive policy,” Wolfers concluded. Helpfully seeking to communicate the finding to the public, he posted a simplified chart on X, comparing laundry equipment prices to other appliance prices, captioned: “Trump raised the tariff on washing machines by about 9%-pts and the price of laundry equipment rose by about 9%.”

But the AER analysis considered prices only four and eight months after the tariffs took effect, and Wolfers cut off his own chart a few months later. Extend the data out to the end of 2019 (prior to the onset of COVID), and the effect vanishes.

This is embarrassing, obviously—but hey, everyone makes mistakes. And besides, the broader view does not negate the earlier point (that in the short-run, tariffs at least seemed closely correlated with price increases). Rather, the broader view complicates the picture, as an economist interested in economics might even be eager to highlight. Here is a classic illustration of a tradeoff, between a short-run price impact and a longer-run gain in domestic production with prices returning to prior levels.

But under Wolfers-ism, complexity is unwelcome, except when needed of course. Looking at the upward pressure that high levels of immigration place on housing, Wolfers has wildly inapt charts rejecting the existence of a border crisis and misleading interpretations of elaborate models. President Biden’s rent control proposal is serious and sophisticated, he says. But washing machine tariffs cannot be accorded such courtesy.