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Economics is pretty much the logic of cooperating with strangers, which is literally unnatural. I think we are programmed with caveman economics much as we are programmed with caveman physics. Both are wrong, but natural. I think the common sense of political economy is really a set of highly alien and unnatural ideas. No wonder it is hard to learn and the object of hostility and derision!

Pete,

Interestingly, the quote is actually a favorite of Knight - original to Herbert Spencer. In Buchanan's Collected Works Volume 5 The Demand and Supply of Public Goods:

"One of professor Frank Knight's favorite quotations is from Herbert Spencer's Preface to the Data of Ethics: "Only by varied iteration can alien conceptions be forced on reluctant minds."' ([1968] 1999: 22).


I remember hearing you offer that quote, "varied iterations..." a thousand times but never knew its origins. I was reading Herbert Spencer's Synthetic Philosophy the other day and found it in his preface from 1879! I assume he didn't borrow it from someone earlier. Thought you'd be interested to know its history.

Taxation is worse than protectionism, being wider and generally deeper than the latter. It's also the lifeblood of the State. Tariffs are a special case of taxation and do far less damage in toto. Of course, Knight wouldn't have said this, because it would have landed him in academic purgatory.

"Economics is pretty much the logic of cooperating with strangers, which is literally unnatural. I think we are programmed with caveman economics much as we are programmed with caveman physics. Both are wrong, but natural. I think the common sense of political economy is really a set of highly alien and unnatural ideas. No wonder it is hard to learn and the object of hostility and derision!"

I'm a bit sceptical about the business of the primitive state of humans. I think it needs more evidence.

I certainly think that evolutionary psychology is quite valid in general. But, I'm not sure it explains people distrust in markets. Firstly, I don't think that we can be certain that people's brains exactly the same way that they did, though it certainly possible.

Secondly, the state isn't really like the tribe. I can see the argument that a race of people are like an extended family. But, I think it's rather stretched.

I think the more realistic problem is the one Bastiat pointed out: people can't think counterfactually. They believe that if the state isn't there to do something then it won't be done at all.

"Taxation is worse than protectionism, being wider and generally deeper than the latter. It's also the lifeblood of the State. Tariffs are a special case of taxation and do far less damage in toto. Of course, Knight wouldn't have said this, because it would have landed him in academic purgatory."

Do you think that taxation worse than discretionary interference such as arbitrary acts of regulators? Taxation can be planned for and planned around, but it's much more difficult to do that with discretionary interference.

Explaining the four big (per Caplan) economic biases:

1) Anti-Market Bias: Spontaneous order is hard to intuit or even describe. The idea that voluntary exchange creates value in and of itself isn't just counterintuitive; it violates our evolutionary understanding of scarcity.
2) Make-Work Bias: The labor theory of value is culturally intuitive and fits with our agricultural heritage. It may not have an evolutionary basis, because one would think that hunter/gatherers would recognize the extreme heterogeneity of labor (and land and possibly even for crude capital goods).
3) Anti-Foreign Bias: Prof. Koppl nailed it, this is the opposite of caveman economics. Strangers will make me better off??? Obviously in an "I, Pencil" framework this is closely tied to Anti-Market Bias. Yet modern liberals are anti-market and conservatives are anti-foreign.
4) Pessimistic Bias: I think the hedonic treadmill and happiness set-points play a role here, and I think both have an evolutionary explanation. To be satisfied with what you have is not to put on more fat before winter.

Notice how "the tribe" is only relevant to #3, and even then it's more of a vague insider/outsider notion, and you needn't dig deeply to see that sentiment among opponents of immigration and trade.


Roger,

I thought the point of Adam Smith was to show how how the system of natural liberty would lead people to co-operate. "Naturally." The fact that ordinary folk don't theorize properly about it just illustrates another of Smith's theorems: the benefits of specialization.

Pete,

You mention Knight and Buchanan in your post. As I read Knight's argument, however, it is at variance with Buchanan's Public Choice approach. We do not suffer from an absence of rationality and intelligence in public policy so much as the presence of perverse incentives. Think Democracy in Deficit.

Steve Miller,

I agree mostly. But, I'm a bit sceptical about some of Caplan's ideas on this score. Have you read this...

http://www.criticalreview.com/crf/jf/Cato_2006.pdf

Current,

You are right to touch on the arbitrary (and capricious) nature of regulation, which is one reason it's so awful. Regulation can sometimes be worse than taxation, no doubt about it.
But to strike at taxation is to strike at the beating, stinking heart of the State (or tax state, as Schumpeter called its modern version).
Regulation presupposes taxation, so I'd give the latter pride of place in the pantheon of State evil.

Bill,

Maybe it does now, but I'm not persuaded in general. Have you read about Elizabethan times, or medieval times? There were few taxes but plenty of arbitrary regulations arbritrarily enforced.

This discussion brings up a problem I've been trying to get my head around: What aspects of statism are the most destructive? Even if you limit the question to a time-span and place such as the next 50 years in the West it seems quite a difficult question to answer.

Current,

Taxation was less during medieval times partly because the State hadn't developed an "efficient" and far reaching tax collection method. The development of central banking was also important in spurring the growth of the State.
Good question as to what aspects of statism are most destructive. I'd nominate the income tax and central banking, although there might be worse institutions. Have at it.

Bill, You are correct about medieval Europe.

It's the spending, that is, the size of government that is the ultimate driver of everything else. Spending is the real tax, and what we calls taxes are a method of finance. As spending increases, the state needs more revenue and seeks out more taxes, e.g., income taxes. The growth of debt necessitates a central bank.

Reform that doesn't address spending will not work: not the flat tax, not free banking. Governments with large deficits need central banks to finance them. As Roger Garrison is fond of saying, there is no such thing as a large, simple tax.

Yeah, Jerry, government spending is the root of it all.
That has to be controlled. Now just figure out how to do it!

Bill, There is no cure until there is a diagnosis.

"Why is it that economic common-sense is so difficult to communicate?"

Economic common-sense is not hard to communicate, only difficult for the intellectual class, politicians, and general public alike to believe. Politicians and the public are quite willing to accept "common sense" economics in "normal" times, but "normal" times are elusive. As Higgs points out, there is nearly always a crises, if not real, then trumped up for the purpose of whipping up popular support for a political cure, always involving an increase in both the scale and scope of governement. With each crises, corporatist or socialist "fixes" to common-sense economics are always ratcheted up. The potential for depression or war is perpetually in view, and that is the reason both protectionism and inflation are such prevalent policy goals. Inflation and protectionism each hide the true costs of the stupid political "remedies" being foisted on the ignorant public, and thereby achieve the goals of the dominant intellectual ideology while keeping social disorder to a minimum.

I don't think you understand my point about Medieval times. It's quite possible for the state to exercise a large degree of control without resorting to taxation to do it.

Running from medieval times, through tudor times into Elizabethan times there were many regulations governing every aspect of life. There were regulations on dress, regulations on what hobbies were allowed. Guilds imposed other regulations and so did the church.

My point is that there isn't anything fundamental about high taxation. It's quite possible for the state to cause a lot of problems without it. High taxation and how the state spends that money is one of the major current problems though.

Speaking as a Brit, I don't think that taxation is the biggest problem government cause for us. The biggest problem is the constant stream of regulations and bans.

I agree with the commenter who essentially said that Buchanan provided the answer. It's not so much that protectionism and inflation are misunderstood (although they probably are, to a certain extent). It's that people do understand them and selected interests do really benefit from them. Concentrated benefits and diffuse costs. That's a recipe for government action, even if it's not good for society.

I'm not sure that economics can be easily grasped. Considering Bastiat's unseen vs seen, I would hold that although common sense economics is mainly charlatan economics, it is based on plainly visible phenomena (like unemployment) and easily comprehensible arguments (like "unemployment is caused by chinese slaves working at 0.01$/year wages").

A counterargument implies the understanding of international economics, budget constraints, etc, and the knowledge of facts regarding distant and unknown countries.

Most people think that low wages there will create a logical black hole in which they produce to export what we cannot buy without producing something in exchange. THe fact that domestic production of tradable goods is required for importing goods from abroad is not easily grasped.

Europe has a fairly balanced trade position, so net capital inflows have little importance. The economics of the capital account is even more complex, but the problem is that most people don't even get exchange between present goods...

I'm convinced by Caplan's argument: voters have no incentives to be rational and informed, and are mainly drones which are prey to logical fallacies and ideological prejudices. It is evident that people normally clever in their private lives become morons when it comes to policy.

Politics and rationality have never met each other.

Pietro, you are complementing Caplan while arguing Jeffrey Friedman's case. If understanding economics is difficult (and I think it is) then we don't have any particular reason to accuse voters of being irrational.

In my view Caplan's argument is all wrong, he seems to start from the premise that everyone can think like an economist. That's the view set behind the question presented about why voters are voting irrationally. But, that question doesn't make sense until we ask if they have the skills and knowledge to vote rationally. I don't think they do.

Bill Hutt probably identified the vote buying motive as the Achilles heel of democracy before public choice theory appeared, unless you count Schumpater. He also addressed the problem of educating the public about economic issues in two or three books, especially "Politically Impossible" and "Economists and the Public" (1936). In the latter his deliberations on the anti-free trade mentality drove him to a major survey of the nature of the social sciences and their relationship to public opinion and politics. I suppose that was about the worst time to produce such a book. He predicted "that The General Theory would have a quite unparalleled influence by reason of what I judged to be its demerits as a contribution to thought".

I agree with Roger and several others who have made the point that economics is not necessarily that easy to grasp. However, I think the problem goes further than that. Our two political parties are composed of traditionalists (conservatives) and mavericks (liberals) and neither party actually seeks to provide a scientifically validated reason for their policy choices.

Conservatives speak of the free market when they justify their claims but that talk is just another part of the tradition. Liberals often speak of possible outcomes as if they are based on science but the line of reasoning starts with seriously flawed assumptions about the capability of government.

Neither side is actually interested in understanding the relationships that exist in the market and politics. And so, they are easily led astray by special interests.

@ Jerry on the words "natural" and "unnatural."

Sure, there is a sense in which liberty is natural. Absolutely. But our innate social theory is suited to band-level society, not the great society. Thus, to *theorize properly* about the great society is unnatural even though there is a sense in which the great society is natural and in which it is natural to *act appropriately* within the great society.

In a classical liberal society, it doesn't matter whether the average person understands how the economy works. In the 19th century, however, economic literacy was arguably greater than today. Jacksonian working-class voters discussed the fine points of banking.

I attribute the decline in economic intelligence to the public school system, an unwise liberal concession to state power. Today we have Tea Party folks discussing central banking and Constitutional theory. Maybe we'll regain lost ground. I don't see Darwinian processes at work.

Current: I just read a few paragraphs of Friedman's critique. I think that the hypothesis of perfect rationality plays a very limited role in the core of Caplan's argument.

The whole book can be summarized in: "rational ignorance is well known, but ignorance implies unbiased errors, while I have a theory of biased errors, which I call rational irrationality (RI), RI arises because there are no private incentives to be rational in politics, whereas markets tend to prize higher rationality in economic decisions, because of RI politicians have a lot of slack (i.e., elections are not a feasible way to constrain political choices), and enlightened elites can exploit this slack to make better policies"

The last two ideas (slack and elitism) are indefensible, although my summary very "strawmanish". But the core argument does not require perfect rationality: only higher irrationality in politics than in private choices, which is hardly a surprise.

The core prediction of Caplan's theory is that voters in mass politics will never learn anything, will never understand anything, and will systematically fall prey to medicine-men, charlatans and demagogues. This summary is somewhat overwrought, but largely correct.

Of course, there is a knowledge problem which implies that neither voters nor politicians will ever be able to understand the details of many policies.

But voters are irrational, i.e., dumb, also when facing simple problems, not necessarily the balance of trade: the theories of the minimum wage, price controls, moral hazard are easy to grasp, but policies involving them are widespread.

Gary Becker was interviewed last weekend in the Wall Street Journal and in effect rebutted the rational ignorance argument. Even if we think the RI individual cedes politics to special interests, those interests compete.

I would also ask proponents of RI to explain the rich array of think tanks operating in the public arena today. Not to mention the elevated level of interest in politics among ordinary people. From a RI perspective, I guess they are over-investing in politics and public policy.

The physical world can be seen as a kind of spontaneous order. Yet surveys of public opinion show that many educated Americans believe such order requires a creator.

To assert belief in the commonsense "laws of nature" (the sun OBVIOUSLY goes around the earth, the earth is OBVIOUSLY flat, etc.) is to mark yourself as uneducated. But accepting or rejecting the counter-intuitive notions of a spherical Earth and a heliocentric solar system doesn't really change most people's behavior. Round or flat, Earth around the Sun or vice-versa, life goes on pretty much unchanged. Experts may need to understand how things "really" are, but most of us don't need to.

The analogies to "commonsense economic principles" aren't perfect, but Caplan's statement of economic biases is a convenient starting place. Many people "know" that trade only benefits corporations and elites, etc. Accepting the counter-intuitive notion that specialization and trade can make everybody better off has consequences in a way that accepting heliocentrism doesn't.

Also, economists (love to) disagree, and the stuff of economic discourse is accessible to common sense observation in a way that astronomy, cellular structure, and so much else in the natural world is not. My experience is that there's not much about economics that the untutored find intuitive or commonsensical.

The result? Many adopt the view of Henry Wheeler Shaw (better known as Josh Billings), "It iz better to kno less than to kno so much that ain’t so.”

Economists generally devote few resources to communicating with the public. (Exceptions among those posting here are noted.) That was not true in the 19th century, when even economists of Ricardo's stature wrote for the educated layman. Economic literacy was high in the 19th century.

Now we complain about economic literacy and blame the rationally ignorant public. My diagnosis is different. If you make your work product unreadable, it will go unread.

> Also, economists (love to) disagree

I think this is also a big problem.

When I debate things with Socialists they often say something along the lines of "your economists say that, but other economists disagree, so you can't cite economics in your favour". That means that to continue the debate I must go into the arguments in question much more.

It's not at all like the motion of the earth where all scientific authorities are agreed.

This is why the debate within economics is important. Austrians are a minority, increasingly neo-classicals seem to be a minority too. But, it need not always be this way.

Let's consider three different departments on campus

Agriculture, fertilizer

civil engineering, traffic

economics, public choice

Everyone has an opinion on food -- they like it, traffic, they want less of it, politics, they either like to disagree or like to avoid it.

An layperson that wanted to ignore agricultural science would start a farm, fail, and then sell the farm. A few neighbors that also run farms might laugh at him.

A layperson that wanted to change traffic safety policy, lets call this person a congressman, might change a policy and either increase or decrease safety policy. In both of these cases experts are useful, right?

However, in public choice no one agrees about ends, so the connection between means and ends is unclear. :Current: is exactly right in the example about experts. If each side rules out evidence in support of the other side's case because it is potentially biased, then we never get anywhere. And Steve Miller is correct in bringing up Caplan. Bryan's research shows that if people do not pay the cost of their silliness we will get increased silliness.

Friedman, in an interview at Staford's Hoover Institution in the last year of his life was asked a series of "tough" questions. Each of which he rattled off a Chicago-style response. The one that has stayed with me is the question about the social ills in the world. Do governments have a responsibility to act to correct social injustice like Jim Crow laws. Friedman simply replied, those laws were put in place by government. Racism was subsidized by the state, and it would be unlikely to persist without the laws that make it cheap for people to consume racism. Removing the laws was all that was needed. [This sounds very much like Mises's intervention story.]

Good economics confronts intuition about the world. Friedman's example is a way of helping people to reject the intuition that government is always the solution by showing it as the cause of problems as well. We update our models when we analyze "the world out the window." Intuition, which got us asking questions can either be confirmed or rejected. If it is rejected then we have learned something.

Politics, it seems, is a bad learning process. Something that our Ag. majors and civil engineering majors don't have to confront.

I found O'Driscoll's comments really instructive, but I have a lot to ponder and quite nothing to say at the moment. Thanks!

Just a curiosity: how many voters were there in the US or in England at the age of Ricardo?

Pietro,

Good question. Only a minority could vote in Ricardo's time. There was a property test ("freeholders"), which was loosened over time. Same dynamic in the US.

A nice point from Pietro. Hutt discovered the "vote buying motive" when he was investigating the rise of the trade unions in the 19th century. Each time the franchise expanded the politicians discovered new interests and constituencies to "buy".

Taking up Roger's point in the very first comment, there may be inherited tendencies that hinder cooperation with strangers, however if we are talking about economic policy, we need to be alert to the contents of popular textbooks.

The point is that we can (possibly) do something about the contents of the books. To be concrete, in the context of development economics, I checked out a Samuelson text and a book that one of my sons was using for a course at the University of Sydney. In each case I think the message about the desirable policies was seriously defective, and this was being taught to people being trained in economics. For what it is worth, a very brief summary can be found in the latter part of this old blog post, for some strange reason it is attributed to some other author presumably due to vagaries of archiving at the site.
http://clubtroppo.com.au/2006/08/18/in-defence-of-market-libaralism-for-the-third-world/

Jerry: your response is a counter to Rational Ignorance theories, but not Caplan's Rational Irrationality.

I"ve never had any problem communicating economic principles and common sense -- but you have to sit down with the person and walk them through, logically, because economics is in fact counterintuitive. In explaining economics, the Austrian approach is most helpful precisely because it is logic-based and rational and not mathematical. Thus, it gives us the language we need to describe it, and language is much closer in structure to an economy than is math. I would be willing to be that it is those whose economics is more math-based that 1) cannot communicate economics well, and 2) themselves don't understand economics well. The ambiguities of verbal language come much closer to reflecting the ambiguities of the catallaxy.

In response to Troy, I think academic economists are responding to the incentives facing them. There are greater rewards for communicating to their colleagues in print, using technical language, than in communicating to the public using ordinary language.
There may be a selection bias that leads to the outcome you suggest.

There is a brisk demand for interventionist economics. The state has a lot of monopsony power as a demander of economic research. Business demanders of economic expertise may seek help with local problems (when should we buy organic sweeteners?) in which case they are not demanding research of general interest. Otherwise, they are probably seeking special favors in the national or state capital, in which case they are demanding pro-intervention research. this is the sort of thing you would get in medical research if germs could sponsor research.

I agree that economists are probably responding to the short-term incentives facing them. But considering the extent to which economists were blamed for not predicting the recession, etc., it might be in economists' long term interest to communicate economics well to the public. Might also clarify thinking and help economists see some of the absurdities they have gotten themselves into as well. And those who are able to predict these sorts of things based on good, sound economic principles will be listened to more often, too, if they have been out in public talking about such things.

Troy,

In spite of my earlier remarks, I think there is genuine disagreement on economic principles. Please let me ignore that important fact, however, and assume that it is in the interest of economists in general to promote the true principles of their discipline. It simply does not follow from that assumed fact that it is in the interest of any one economist to preach true principles rather than heresy. The demand for heresy is strong, that for truth weak.

Roger Koppl: "I think there is genuine disagreement on economic principles."

As far as I know, until recently the Post-Keynesian school were not particularly privileged within academia. As far as I can tell they did it because they believed in it.

I'm not sure that general cynicism about economist's motives is that realistic. Surely they avoid saying things that are politically incorrect. But I think that many have the choice to pursue other paths in life if they are interested in material reward.

Since people are bringing all this stuff up about economists views and interests perhaps we should be looking more at the Gramscians?

In many ways I see the modern western world, especially Britain, as a demonstrator of the success of Gramsci's ideas. Talk to a normal British person about history and you'll see what I mean.

If Gramsci's ideas can be used to promote Socialism then they can also be used to remove it.

Current,

IMHO we should be neither more nor less cynical about economists than politicians, carpenters, or beauticians. Sandy Peart and David Levy call that choice "analytical egalitarianism." We don't have to think beauticians are more venal than others to recognize their incentive to support licensing restrictions. Rather than cynicism, I go for skepticism. The cynic may defined as one who denies the reality of human virtue. The skeptic, instead, recognizes the reality and importance of virtue, but also its scarcity. Love is a scarce resource as Dennis Robertson pointed out. We should carefully husband resources such as love and integrity!

Nothing wrong with skepticism, but you have to be careful it doesn't become pessimism. It is as problematic as optimism. I prefer the hope approach -- in this case, the hope that if you say what is true enough, the truth will win out over falsehood. You just have to demonstrate your correctness enough times, and the truth will win out over time. But you have to have patience for it to happen. And you can't give up the floor to the proponents of falsehood. We have to stop letting the Krugmans and Lou Dobbses of the world to have the loudest voices and the final say. Even if it's working with one person at a time -- though other levels of communication are also important. But pessimism won't get anyone anywhere.

At least three factors can lock economists into lines of thought that Austrians and anti-interventionists deplore. One is a kind of "brand loyalty" to the school where the student starts out, then the incentives of publication and promotion tend to ensure consistency. Second is a different kind of brand loyalty, along the lines of ideology, sometimes the crude political ideology that made Austrian economics untouchable for many people in the past (less so today) and more often the ideology of interventonism which now has bipartisan political support.

And then there is another kind of pressure that is possibly more dangerous because it can trap people who are prepared to resist the first two kinds of brand loyalty. This comes under the heading of "railway lines of thought", also called paradigms, research programs and metaphysical research programs that are driven by philosophical principles that are often unstated and even unconscious. One of the costs of positivism was the way that these principles, certainly the metaphysical ones, were ruled out of court for serious scientific discussion.

The cost of most forms of anti-positivism aparta from the Austrians is the way philosophial and metaphysical theories have been addressed in isolation from fieldwork, including the evaluation of policies that should keep us in touch the world outside the window.

Roger Koppl,

I see what you mean but I don't really agree. I may not understand US universities well, but certainly in Britain if an academic wants to make more money he or she can do that by moving into administration.

It may be that the shilling for interventionist economics gives better terms I suppose. But, I still think there are better ways to make a living, and that therefore the best explanation for what economists write is that they really believe it.

Current,

Yes, I think most economists believe what they write. But people have a tendency to believe what they say and to believe what is convenient for them to believe. Unconscious bias and all that. Plus, there is a filter. It is harder to get through graduate school thinking your professors are mad. You are more likely to exit academia the fewer consulting opportunities you have. And so on. It’s not that economists are just willfully saying anything that sells. There are lots of reasons to reject that, well, cynical hypothesis. But it does matter what doctrines are in demand, I think.

It makes a difference at the margin, as they say.

"One of professor Frank Knight's favorite quotations is from Herbert Spencer's Preface to the Data of Ethics: "Only by varied iteration can alien conceptions be forced on reluctant minds."' ([1968] 1999: 22).

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