Public Policy and Refractory Reality

|Peter Boettke|

It seems to be important to stress in the contemporary policy discussions that intentions do not always equal results.  Seems strange to have to point out this basic point, but our current intellectual climate seems to encourage a counterproductive two-step -- to assume one side is good and the other evil, and that it is the evil side that is preventing the good side from achieving all that they promise for a better world if only you followed their policy prescriptions.  This "knaves, fools, and me" mentality is a block to genuine discourse in a democratic society, not really a part of it --- as it asserts a privileged position for the self-anoited expert in that discourse.  It is a conversation stopper, and a demand that one party be the granted to position of speaker and the other that of only listener.  No discourse required.

But an open discourse is fundamentally what is required at this juncture in our society with so many critical issues at stake in the democratic decision-making process concerning climate, race, gender, community, education, work, and commerce.  We would be wise as a society to think about the fundamental issues concerning democratic discourse raised in works such as Frank Knight's Intelligence and Democratic Action and Vincent Ostrom's The Intellectual Crisis in American Public Administration.  And we would do well to remember the fundamental lesson of basic economics.

Policy makers may very well intend to do good, but the policies they choose may be inconsistent with that goal due to incentive incompatibilities and insurmountable knowledge problems.  The best intentioned policy makers and the most motivated policy makers may still not be able to know what the best course of action is in any given circumstance let alone how to learn through experience about to accurately adjust given an initial frustration in plans.  There truly is problem with the best laid plans of mice and men going astray.

So the #1 rule of economic policy should be "wishing it so doesn't make it so".  Political philosophy might be aspirational, but economic analysis cannot be.  We live in a world of scarcity, scarcity implies trade-offs, those trade-offs must be negotiated, in order to negotate the trade-offs individually and collectively there must be an alignment of incentives, a flow of information, and feedback mechanisms that aid in the correction of the inevitable errors that result from the fact that we are dealing with fallible but capable human actors.  In other words, as analysts we have to (a) recognize that reality is not optional, and (b) that we must examining the coping mechanisms that imperfect beings utilize in an imperfect world to stumble their way through in a way to improvement in the human condition rather than worsen the situation.

Perhaps if we could rely on pixie dust, politicians would be much happier and their acts of promisory politics would not have unintended and undesirable consequences.  It sure would be nice if we were all smarter, friendlier, healthier, and wealthier.  But our ability to achieve these desired ends as a society is a function of public policies not pixie dust, and those public policies must be grounded in a recognition of the refractory reality within which human beings exist.  Both sides of the aisle prefer pixie dust policy to serious economic analysis of public policies and that is our problem.  "Wishing," from the right or from the left, "doesn't make it so."

It doesn't matter whether we are talking about discrimination, income inequality, or the wealth and poverty of nations, what matters for public policy discussions should be incentive compatibility and knowledge processes. The intellectual strategy of the analyst must be to critically examine the effectiveness of chosen policy means to achieve stated ends sought and do so through an examination of the systemic incentives, informational requirements, and feedback processes that would guide adjustment.  The strategy of the reformer must be to first and foremost identify incentive compatible policy shifts, and then device incentive compatible strategies for implementation.  In both cases, it is the recognition of the refractory reality that grounds the analyst and the reformer from engaging in free floating abstractions.

 

Comments

[Daniel Kuehn]

I couldn't agree more on this point: "So the #1 rule of economic policy should be "wishing it so doesn't make it so"

The trouble is, it's usually very badly applied in practice. In my experience nine times out of ten someone that says this in a dialogue has actually been presented with an argument - not just wishful thinking - and for whatever reason they're not willing to engage the argument they've been presented with.

It is important as a principle but more often than not it's a conversation stopper.

[Peter Boettke]

Daniel,

What stops conversations more?

The claim that the world is full of knaves, fools and me (and my friends who agree with me).

Or

Folks, lets remember that we live in a world of scarcity and thus we face trade-offs that must be negotiated carefully -- have you thought about the incentive compatibility issues and the knowledge problems that proposal must deal with? If not, then perhaps we have to go back to the drawing board.

To me the first is what happens when we politicize economics, whereas the second is when we recognize that the science of economics provides an important grounding to the conversation in the art of political economy.

Nobody wants to stop a conversation, the question is instead how to engage in an economically meaningful conversation.

Pete

[Daniel Kuehn]

Peter - both are a problem. I'm not sure I could assess the frequency of each.

Of course phrasing it the way you did above is fine. The trouble is when people don't, declare that someone is just doing wishful thinking, and don't engage the argument.

[Daniel Kuehn]

"Nobody wants to stop a conversation"

Unfortunately, I'm not so sure about that!

[Daniel Kuehn]

The difficult part is of course some people ARE knaves and fools. Evaluating a "knaves, fools, and me" argument is an empirical question and one people will differ on, so I think it's harder than just dismissing "knaves, fools, and me" arguments as inherently bad practice.

I assume you have not criticized Selgin's recent Cato Journal article or Gastelle's doctoral dissertation along the "knaves, fools, and me" line have you Peter? For that matter, you make what read like "knaves, fools, and me" arguments all the time (for example your "Keynesian Avalanche" post and associated writing).

Presumably you differentiate these because you think one is empirically right and one is empirically wrong. The structure of the argument, though, is precisely the same.

[Enial Cattesi]

"In my experience nine times out of ten someone that says this in a dialogue has actually been presented with an argument"

One would say it depends on the argument. If it is something along the lines "the world is to complex not to have a creator" or the paradox of thrift or that inflation causes an increase in savings or that higher prices increase the bargain power, it is very hard to take those seriously. Time is a very expensive commodity and so one must choose his dialogue partners based on the quality of the arguments if he wants progress in his line of thinking.

"Nobody wants to stop a conversation"
Most people do actually when the conversation leads nowhere. If one thinks that talking to himself is more productive than a conversation with X, why should he continue?

"the question is instead how to engage in an economically meaningful conversation"
That's easy: choose dialogue partners with good arguments for opinions contrary to yours. Problem solved.

[John S]

Daniel, what do you feel is wrong with Selgin's article? I assume you're referring to "Operation Twist the Truth"?

[Daniel Kuehn]

John S -
I'm not sure anything is wrong with it, that's sort of the point of my comment. "Knaves, fools, and me" arguments are empirical arguments. I haven't read it yet and he may be exactly right. But he's clearly making the same sort of argument Krugman has, that people he disagrees with aren't just wrong but twisting the truth for knavish reasons (in this case, defending their institution rather than the common good).

[Roger McKinney]

I doubt any society has ever been different. In writing about Germany from the advent of socialism in the 1870's until Hilter, Mises makes the point that the socialists always blamed residual capitalism for all problems, even though the cause of the problems was obviously socialism.

Socialists keep a small space for markets around for two reasons: 1) to keep socialists from starving and 2) to have someone to blame for the problems socialism causes.