Friday, March 25, 2011

Americans Like the Taste of Snake Oil (110110)

“When we enter the field of public economics, elementary truths are ignored”, said my neighbor. “There are economists, regarded as brilliant, who believe that a policy of spending, and I mean consumer spending on a national scale, is the answer to economic salvation. Quite literally, they hate having people put money into savings. When anyone points out what the long-run consequences will be, they reply, ‘in the long-run we're all dead.’ Believe it or not, they pass that crack off as wisdom.”

“I’ve heard that expression,” I said. “I never did like it. It’s insulting. It's fatalistic. It's as if nothing is worth bothering with, unless it’s for the short-run. Actually, it’s really a stupid expression!”

“Here’s the real tragedy, though Draco,
said my neighbor. “Contrary to that ‘wisdom,’ right now, and I mean this very day, we are already suffering the long-run consequences of the policies of the remote or recent past. Today is already the tomorrow the bad economist told us yesterday to ignore. Part of the problem is that it may take a few months, sometimes several years or even decades, before the long-run negative consequences of some economic policies can become clearly evident.”

“Well, okay, Neighbor,” I said, “What’s the bottom line here?”

“The bottom line is this: in every case, the long-run consequences contained in every policy, in fact, the whole of economics, can be reduced to a single two-part lesson expressed in a single sentence. This is that sentence: The art of economics consists in looking, not merely at the immediate effects, but at the longer term effects, of any act or policy, and tracing the consequences of that policy, not merely for one group, but for all groups. The bad news is that ninety per cent of the economic fallacies working such terrible and widespread harm in the world today are the result of ignoring one or both parts of the lesson laid out in that sentence.”

“That's terrible. But, at the same time, Neighbor, we do live in the present,” I said. “There are economic problems that need solving in the short-term. Wouldn’t a concentration on secondary consequences also cause problems?”

“Of course, the opposite error is possible,” said my neighbor. “Certain groups can be immediately hurt by policies that,
in the long-run, can be proved to be beneficial on net balance. Look, please understand that in considering an economic  policy, I’m not advocating concentrating on long-run results to the community as a whole to the exclusion of the immediate effect on certain groups within the community. The need is to look at both.”

“That makes sense, but this is a widespread problem.” I said. “How do we deal with this?”

Replied my neighbor, “It’s widespread, yes. But comparatively few people today make this error. Those few who do make this error consist mainly of professional economists working in the government, the academy or writing for the press.”

“Say, what? It’s the professional economists that make this error? Are you actually telling me that the people generating these fallacies and spreading them far and wide are professional economists?

Yes, said my neighbor.

Okay, then. Answer me this question: What good are professional economists?”

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