“Befuddled, indeed,” I thought. “There’s got to be something more at work here, something just out of sight. It has to be an important factor or operating principle. It’s something not immediately apparent and not anticipated. It’s some kind of regenerative factor.” So, I said, “Neighbor, it seems to me that there is something more fundamental than just ‘self interest’ that generates these fallacies.”
Smiling, my neighbor responded. “Yes. You’re absolutely right, Draco. There is a second main factor. The factor that spawns new economic fallacies every day is the persistent tendency of people to see a policy only in terms of its immediate effects and only on a special group. They don’t even think to inquire what the long-run effects of that policy will be, not only on that special group, but on all groups. I call it The Fallacy of Overlooking Secondary Consequences.”
“‘Overlooking secondary consequences’ sounds like, what we call, in business ‘Failing to Plan,’ which has a corollary known as ‘Planning to Fail.’ With either title, it’s bad. Overlooking secondary consequences leads to sub-optimization. That’s where one element in a system, acting to achieve its own goals, operates to constrain or to hamper the actions of other elements of the same system. Although successful in achieving its own particular goals, it often causes serious injury to the other elements of the system. The supreme irony in this is that the well-being of every element in a system depends upon the well-being of the whole system. That’s why, to preserve the well-being of the whole system, it’s sometimes necessary for one element to limit its goals and actions.”
My neighbor nodded, smiling.
I continued, “I can see, in the distinctly different areas of politics and economics, sub-optimization can have serious, widespread negative repercussions. This is where the special interests trying to do the sub-optimization gain sufficient political power to accomplish the dirty deed. This where, despite the doer’s intention to ‘do good,’ the doer ends up ‘doing bad.’ This is what proves that there’s a big difference between intentions and consequences. People tend to confuse the first for the second.”
Grinning, my neighbor rejoined, “Draco, you’ve nailed almost the whole difference between the good economist and the bad. The bad sees only what immediately strikes the eye, the good also looks beyond the immediate. The bad sees only the direct consequences, the good also looks at the indirect consequences. The bad sees only what the effect of a policy has been or will be on one group, the good also looks into what the effect of a policy has been or will be on all groups.”
“You know, I am wondering how we deal with the root of this problem,” I said. “It’s not like the distinction is not an elementary and obvious one. We’re not dealing with rocket science here.”
“The distinction may seem obvious and elementary,” said my neighbor.” But, the truth is that people tend to see only what they look for. They do this, despite knowing the elementary truths that there are all sorts of indulgences, though delightful at the moment, are disastrous in the end.”
“So, how does what you are saying play out in the field of public economics?” I asked.
Smiling, my neighbor responded. “Yes. You’re absolutely right, Draco. There is a second main factor. The factor that spawns new economic fallacies every day is the persistent tendency of people to see a policy only in terms of its immediate effects and only on a special group. They don’t even think to inquire what the long-run effects of that policy will be, not only on that special group, but on all groups. I call it The Fallacy of Overlooking Secondary Consequences.”
“‘Overlooking secondary consequences’ sounds like, what we call, in business ‘Failing to Plan,’ which has a corollary known as ‘Planning to Fail.’ With either title, it’s bad. Overlooking secondary consequences leads to sub-optimization. That’s where one element in a system, acting to achieve its own goals, operates to constrain or to hamper the actions of other elements of the same system. Although successful in achieving its own particular goals, it often causes serious injury to the other elements of the system. The supreme irony in this is that the well-being of every element in a system depends upon the well-being of the whole system. That’s why, to preserve the well-being of the whole system, it’s sometimes necessary for one element to limit its goals and actions.”
My neighbor nodded, smiling.
I continued, “I can see, in the distinctly different areas of politics and economics, sub-optimization can have serious, widespread negative repercussions. This is where the special interests trying to do the sub-optimization gain sufficient political power to accomplish the dirty deed. This where, despite the doer’s intention to ‘do good,’ the doer ends up ‘doing bad.’ This is what proves that there’s a big difference between intentions and consequences. People tend to confuse the first for the second.”
Grinning, my neighbor rejoined, “Draco, you’ve nailed almost the whole difference between the good economist and the bad. The bad sees only what immediately strikes the eye, the good also looks beyond the immediate. The bad sees only the direct consequences, the good also looks at the indirect consequences. The bad sees only what the effect of a policy has been or will be on one group, the good also looks into what the effect of a policy has been or will be on all groups.”
“You know, I am wondering how we deal with the root of this problem,” I said. “It’s not like the distinction is not an elementary and obvious one. We’re not dealing with rocket science here.”
“The distinction may seem obvious and elementary,” said my neighbor.” But, the truth is that people tend to see only what they look for. They do this, despite knowing the elementary truths that there are all sorts of indulgences, though delightful at the moment, are disastrous in the end.”
“So, how does what you are saying play out in the field of public economics?” I asked.
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