Tuesday, August 30, 2005

All Groups, Not Just Some

Yet another e-discussion has resulted in something I'd like to share with my online friends. You'll be glad to know that this one's shorter than usual. I just wish I had sent it out sooner, because to me it discusses the most important political/economic concept I've dealt with in a long, long time.

In the upcoming campaigns, politicians and "spokesmen" and "leaders" of all kinds will depict certain programs and policies as "successful" in order to suit their own political purposes or enhance their own careers. They do so because they can get away with it; they can get away with it because we let them; and we let them because nobody taught us what is perhaps the single most important paragraph in the history of economic thought. This is from Henry Hazlitt's classic treatise, "Economics In One Lesson.":

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"...From this aspect, therefore, the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."

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I would add that this principle, of course, applies to more than economics. It is only the intentional violation of this principle that has made possible the success - if you wish to call it that - of thinkers and writers from Galbraith to Kant to Kynes to Lenin to Earl Warren to (perhaps most of all) John Maynard Keynes - and it was only widespread lack of awareness of this principle that made these thinkers and writers and their ideas popular, whether with the intelligentsia or the general public.

Thomas Sowell points out how "the anointed" (social observers and tinkerers who fancy themselves on a far higher moral plane than you or I) try to use verbal tactics to substitute for substantive argument in an example of this principle. This is typically done to justify the third-party decision-making of which the anointed are so fond, particularly when the third parties are the anointed themselves. Being third parties who dictate to others from above, they pay no penalty for being wrong - unlike those of us to whom they dictate.

Although ideally words should represent ideas, the anointed often use words as ways of avoiding meaningful discussion of ideas or to hide the fact that they haven't any ideas.

Sowell discusses how easy it is to make a plausible-sounding case on behalf of a particular policy by merely pointing out that "the people who benefited from it found it beneficial." i.e, "We should expand Federal disaster relief [or corporate welfare] because Federal disaster relief [or corporate welfare] is beneficial to those who receive Federal disaster relief [or corporate welfare] because they benefit from it."

Which of course directly contradicts Hazlitt's admonition to trace "the consequences of that policy not merely for one group but for all groups," not to mention being a fine example of circular, and therefore meaningless, logic.

(Nonetheless, such "logic," when accompanied by the proper delivery, can seem quite convincing to those who have not been intellectually armed against this tactic. The "serious and thoughtful" delivery technique seems to work well for many.)

Sowell's example is what would in mathematics be called an "identity" - a self-referencing equation proving nothing. (The equation 1=1 is an identity.) What fools so many is that an identity has all the outward appearances of a valid mathematical or statistical proof. The same misleading outward appearances fool many of us in the realm of political discourse - such as when policy advocates flaunt reams of meaningless statistics, with a pronounced attitude of great indignation at the idea that this program might not continue to be expanded.

Not to beat this point to death, but it must always be remembered that these arguments boil down to one meaningless statement: "The people (or groups) who benefit from this program find it beneficial."

In some fields this is called a "tautology." If you ask me how far it is to Omaha, and I reply by saying, "It's as far as it is" - that's a tautology. Once again, it is self-referencing. It has the outward appearance and form of a valid sentence that means something, but in reality means nothing.

(There is a related but separate purely political aspect: The politician who is also thinking, "The more people who believe that they benefit from programs I support, the more votes I'll get." This is an example of using your own money to buy your vote. But this discussion is more about economics than politics, so I'll put that issue aside.)

I am compelled to depart pure economics, for a few paragraphs, in favor of outright commentary...

As an example of the "It's beneficial because it benefits the beneficiaries" approach: If the Federal government were to impose a new income tax of $1,000 on every American taxpayer, and then were to distribute these funds equally among all left-handed guitarists, it would be hard to argue that left-handed guitarists did not find this program beneficial. TV interviews of left-handed guitarists who "support the program" would be solemnly regarded as evidence of "widespread public approval."

The New York Times would run a six-part feature on the "meaningful contributions to society" that are only now being made by left-handed guitarists. Radio psychologists would wax poetic about the "beneficial impact on self-esteem" experienced by left-handed guitarists, and would go on to highlight the benefits of "mainstreaming" that will occur as a result. However, they will caution left-handed guitarists to "preserve all that is unique and beautiful about their culture, " and to resist "societal pressure to acculturate too quickly." They will be advised to "stay in touch with their left-handedness."

Advocates of the program could point to massive amounts of statistics "proving" how beneficial it is; they could discuss all the "unmet needs" that are being filled; they could point to all of the "expanded educational opportunities" that have been provided; they could triumphantly applaud the "improvements in children's access to health care" that have been created (and after all, who could oppose THAT?); they could boast of how this program is "breaking the cycle of poverty" and "eliminating the root causes of crime" for left-handed guitarists.

If so-called "obstructionists" and "reactionaries" and "outmoded classicists" point out that this program unfairly imposes costs on others, many of whom find themselves in more dire consequences than those faced by left-handed guitarists, their actions will be labeled as "merely the latest example of attempts to cut taxes for the wealthiest five percent," they will be told that this program is merely a "redress of prior inequities," compensation for the "legacy of left-handedness," a compassionate effort to "make reparations for past grievances," an example of "social justice" enacted on behalf of "blameless victims."

And perhaps most of all this program will be presented as a way of overcoming "societal biases" that are "endemic to Western culture."

All of that is a far, far cry from proving that this program should be pursued, implemented, or expanded. Nor does any of it address the damage done to all citizens who are not left-handed guitarists. There is one thing, however, that they won't overlook: Before they close the press conference, you can be sure that they will utter possibly the seven most expensive syllables in politics: "But there's more yet to be done..."

To say "the people who benefited from it found it beneficial" is to merely engage in tautology. But if that tautology is delivered with enough conviction, outrage, gravitas, seriousness, feigned honesty, or other technique designed to reach a specific demographic; if it is delivered from behind a podium, near a microphone, upon a stage, or in front of a TV camera; if it is delivered by someone who is either accurately or inaccurately described (by himself or others) as a "leader" or "spokesman" or "professor" or "analyst" or "expert" or even "the conscience of the Senate" - well, then, it tends to be taken very seriously, even by people who know better.

Who are these people who take it so seriously? They are the people who will be voting in the next election, which is why I so fervently hope that you will forward this link to as many of them as possible, and that they will do the same.

And now, to return - more or less - to economics...

Unseen costs. Hidden consequences. Unmentioned side-effects. When told that program A will benefit Group B, always, always, always ask: What about Groups C, D, and E? How will it affect them? And might there even be conveniently-omitted negative effects on Group B, in addition to the positive effects mentioned?

Hazlitt uses an example of a bridge. Suppose a community raises taxes in order to build a bridge...perhaps it's not all that urgently needed, or maybe it is, but in any case it must be a Good Thing because it provides jobs for local workers. Once the bridge is built - well, it's there. You can see it, it's real, it exists, you can even use it if you want to. In the face of that direct sensory input, it's easy to forget about the unseen.

It's easy to forget about where that tax money would have gone - the lawnmowers and sweaters and basketballs and food and medical care that would have been bought, increasing employment in those industries. The services that would have been purchased. The money that would have gone into savings accounts, enabling banks to make more loans, resulting in more auto and home purchases, leading to more employment in those industries as well as an overall higher standard of living.

It's easy to forget about those things precisely because they do not now exist. Instead, a bridge exists. Resources which would have gone towards those other things have instead been redirected into this bridge. You can see the bridge; you cannot see those other things because they do not now exist.

But it's not just a matter of a direct trade-off; we didn't just trade a bridge "straight up" for those other things. In a free economy, and in the absence of government interference or coercion, capital flows from lower-valued to higher-valued uses.

This is one reason why "the pie" keeps getting bigger, why everyone's standard of living can rise simultaneously. Economics is not a zero-sum game.

The only thing that can prevent this is government interference or coercion. So when the government steps in and forces capital to go where it would not have otherwise gone, that capital is being prevented from going to its highest-valued use. We have a name for that: We call it inefficiency.

It means that one or more items of lower value have forcibly been substituted for one or more items of higher value. The proof is that if the lower-valued items were not in fact of lower value, no government intervention would have been necessary in order to bring them into existence.

When government forces this kind of substitution, the result by definition is a lower standard of living for the society as a whole than would otherwise have existed. So it's not just an "equal trade." In this transaction, we all lose, except for the politicians who triumphantly point to the bridge.

"But what about those workers?" you ask. "Didn't they at least benefit from this?" Well, yes, they did - which is another way of saying that "something which benefits a certain group of workers is beneficial to those workers who benefited from it." We're back to tautologies again. The error (known as “the fallacy of composition”) lies in looking only at that one specific group of workers, rather than all workers.

Suppose that it took 4,000,000 man-hours to build that bridge, meaning that 2,000 people were employed for one year. Wouldn't those 2,000 workers and all other workers have benefited more from allowing that capital to create, say, 2,500 permanent full-time jobs rather than 2,000 temporary jobs?

Where did I get that 2,500 figure from? Always keep in mind that in a free economy only government can force capital away from higher-valued uses, which means that it is forced into places and projects where it is, again by definition, used less efficiently than otherwise would have been the case. If that capital is capable of creating 2,000 jobs when used inefficiently, it is surely capable of creating 2,500 when used at maximum efficiency. At worst, it would create 2,001 such jobs.

Additionally, how does it benefit those 2,000 workers - along with all other workers - to live in a community with a standard of living that is now lower than it otherwise would have been? The answer, of course, is that it does not.

And keep in mind that we are only talking about the labor aspects of the situation. This discussion does not even attempt to address the inefficiencies and waste inherent in the government purchase of supplies and raw materials for this project, when compared to how those items would have been purchased had they been allowed to flow to where they represent the highest-valued use of someone's private capital. But it is no secret, with a government that recently paid $900 apiece for toilet seats, that the differences in efficiency are staggering.

Perhaps, for now, it would be sufficient to acknowledge that the incentives and constraints inherent in the private purchases of these items mitigate strongly in favor of efficiency, while the incentives and constraints inherent in government purchases of these same items - even if purchased for the same purposes - mitigate strongly in favor of inefficiency. The details can be deferred to a separate discussion.

So I will now commit the editorial sin of repeating myself as a way of closing:

Unseen costs. Hidden consequences. Unmentioned side-effects. When told that program A will benefit Group B, always, always, always ask: What about Groups C, D, and E? How will it affect them? And might there even be conveniently-omitted negative effects on Group B, in addition to the positive effects mentioned?

When evaluating candidates, issues, and proposals, I hope you will never lose sight of this.

And as usual, I want to hear from you on this. What do you have to say? Had you ever heard of Hazlitt's formulation? And what do you think of it? Were you familiar with tautologies, or with "identities" in mathematics? Or more generally: What else does this discussion bring to mind for you?

I'm waiting...

4 Comments:

At 6:46 PM, Blogger ModTodd said...

Bob:
I'm not much on economics, but a few things come to mind. Maybe the bridge isn't the perfect example. Sending men to the moon might be a better boondoggle, although I love my teflon and still have a hankering for Tang and Space Food Sticks.

1. Bridge-builders are generally itinerant, so their work isn't actually temporary. Add to this the maitenence work generated by the structure, and if the structure includes an income-generating toll, then perhaps, like a turnpike, it's plausible that the structure could actually become profitible.

2. Just as there are hidden or unseen costs in any endeavor, there are also eaually unseen or hidden benefits from them as well. Community pride not being the least of these. With the bridge in place, it's covenience is a benefit for all who need to get across the barrier. Just try driving into Biloxi at the moment. Infrastructure is beneficial to all in a mobile society. Time savings alone is worth something.

 
At 6:46 PM, Blogger ModTodd said...

Bob:
I'm not much on economics, but a few things come to mind. Maybe the bridge isn't the perfect example. Sending men to the moon might be a better boondoggle, although I love my teflon and still have a hankering for Tang and Space Food Sticks.

1. Bridge-builders are generally itinerant, so their work isn't actually temporary. Add to this the maitenence work generated by the structure, and if the structure includes an income-generating toll, then perhaps, like a turnpike, it's plausible that the structure could actually become profitible.

2. Just as there are hidden or unseen costs in any endeavor, there are also eaually unseen or hidden benefits from them as well. Community pride not being the least of these. With the bridge in place, it's covenience is a benefit for all who need to get across the barrier. Just try driving into Biloxi at the moment. Infrastructure is beneficial to all in a mobile society. Time savings alone is worth something.

 
At 7:17 PM, Blogger ModTodd said...

Bob:
I'm not much on economics, but a few things come to mind. Maybe the bridge isn't the perfect example. Sending men to the moon might be a better special-interest project, although I love my teflon and still have a hankering for Tang and Space Food Sticks.

1. Bridge-builders are generally itinerant, so their work isn't actually temporary. Add to this the maitenance work generated by the structure, and if the structure includes an income-generating toll, then perhaps, like a turnpike, it's plausible that the structure could actually become profitible. Though if it ever were, it's likely those bonds borrowed to build it would have to be repaid, a major reason the turnpike to Topeka keeps running at a loss. (They're putting in extra lanes from Lawrence to Topeka to accomodate the incredible Kansas traffic; that'll get thjings back into the red.)

2. Just as there are hidden or unseen costs in any endeavor, there are also unseen or hidden benefits from them as well, as Marshall McLuen would take umbridge. Time-money-energy-savings, shear conveniece, emotional issues - just plain fun, spiritual matters, health and welfare, etc. Bridges allow interupted commerce above and below. The Golden Gate is a global icon. Some groups may indeed come to worship certain structures. With the bridge in place, it's covenience is a benefit for all who need to get across the barrier. Just try driving into Biloxi at the moment. Infrastructure is beneficial to all in a mobile society. Time savings alone is worth something.

Maybe I don't understand Hazlit's formualtion, but how many people need to be served to make something worth doing, all of them or only a simple majority. George Bush would insist that his 52% is a "Mandate." There are always several ways that any project can be shown to beneficial to all, and the more of these examples that can be shown, ought to help validate the endeavor, even though each individual example may only serve the good of a few. I think that's the essence and proof of good politics really, and one of the only ways to circumvent inefficiencies as special interests collide with the interest of the larger public.

 
At 1:31 PM, Blogger rokkgod said...

I was surfing around and found another George Bush site.George Bush Doesn't Care About Black People This place has a ton of funny videos and mp3s.

 

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