Dani Rodrik breaks down the two types of economists:
I call them "first-best economists" and "second-best economists." Here is my guide to them.
You can tell what kind of an economist someone is by the nature of the response s/he offers when confronted with a policy issue. The gut instinct of the members of the first group is to apply a simple supply-demand framework to the question at hand. In this world, every tax has an economic deadweight loss, every restriction on individual behavior reduces the size of the economic pie, distribution and efficiency can be neatly separated, market failures are presumed non-existent unless proved otherwise (and to be addressed only by the appropriate Pigovian tax or subsidy), people are rational and forward-looking to the first order of approximation, demand curves always slope down (and supply curves up), and general-equilibrium interactions do not overturn partial-equilibrium logic. The First Fundamental Theorem of Welfare Economics is proof that unfettered markets work best. No matter how technical, complex, and full of surprises these economists' own research might be, their take on the issues of the day are driven by a straightforward, almost knee-jerk logic.
Those in the second group are inclined to see all kinds of complications, which make the textbook answers inappropriate. In their world, the economy is full of market imperfections (going well beyond environmental spillovers), distribution and efficiency cannot be neatly separated, people do not always behave rationally and they over-discount the future, some otherwise undesirable policy interventions can generate positive outcomes, and general-equilibrium complications render partial-equilibrium reasoning suspect. The First Fundamental Theorem of Welfare Economics is proof, in view of its long list of prerequisites, that market outcome can be improved by well-designed interventions. Since they have given up on the textbook model, members of this group have an almost-infinite variety of "models" to choose from as they think of public-policy issues.
That's a useful taxonomy, actually, and it cuts across ideological lines. Rodrik identifies not only libertarians like Greg Mankiw, but left-of-center types like Brad DeLong, as first-best economists. Folks like Paul Krugman, Joe Stiglitz, and the EPI-types are second-best economists. So far as dabblers go, most of my libertarian friends are first-best types. Im a second-best types. And this isn't surprising. As Rodrik puts it, "these disagreements are often grounded not in economics per se, but in strongly held prior views about the world in which we live in." Of course, we all think our views are grounded in economics and evidence, but which evidence you find most compelling, and which assumptions you're willing to make (can consumers be rational and wise health care purchasers), matter greatly.
