Wednesday, September 2, 2015

Why Is Macro So Hard? Someone Meant Well

There’s a philosophical argument that’s much larger than mere macroeconomics, about the appropriate relationship between the ends and the means of a decision.

Does the means justify the end?

Or does the end justify the means?

There are no answers that satisfy both questions. Indeed, Thomas Sowell argued that one of the big distinctions in the political arena is whether someone is focused on motivations or consequences. Part of the craft of economics is that you need to think about both. Part of the problem with understanding economics is that politicians and bureaucrats appear increasingly skewed towards a focus on motivations at the expense of consequences.

Kevin Williamson, writing at the conservative/libertarian National Review has an excellent take on the problems with motivation as your basis for judgment.

Politicians tell us what a policy is supposed to do, what it is intended to do, and they ask to be judged by their intentions.

That paragraph continues with an extended dig at Obamacare. I’m OK with this, but isn’t good enough to quote … except for the zinger I highlighted in bold, which doesn’t make much sense without the rest of it:

The so-called Affordable Care Act, we were assured, was intended to make health insurance a better value and to make health-care institutions give their customers better service at better prices. Never mind the unspoken premise that is the law’s foundation — “We can radically increase demand for health-care services while reducing costs and improving quality because politicians are magic!” — and its inescapable contradictions. “We meant well,” they say, and that is supposed to be enough.

It isn’t.

This blog is read by non-majors, but the target audience is economics majors. As a major, here’s what your future holds in store:

It falls largely to persnickety, unpleasant eat-your-spinach types, and to certain happy souls blessedly liberated from the romance of politics by events and experience, to document that what is supposed to happen and what happens are not the same thing.

Again, there’s some hyperbole in the middle of the paragraph before another zinger:

You can raise wages at Walmart in the naïve expectation that there will be no consequences — in much the same way that all manner of bad decisions begin with the exhortation, “Here, hold my beer.” But there will be consequences.

I actually kinda’ like that vision. Without advocating alcohol consumption, can you imagine what the legislative process would look like if it was shown as reality TV, with all the legislators holding beers (and some of them probably partaking), and one of them said something like “Here, hold my beer, I’ve got to go pass some new laws.” What would you call such a show — Jacklegislator? OK. My daydream is over.

Economics has sometimes been characterized as the social science of unintended consequences.

Some unintended consequences are unforeseeable, but many are not. They are at least partly foreseeable, even if unintended, and our good intentions do not entitle us to blind ourselves to reality. …

That we can be reasonably sure that there will be unintended consequences does not mean that we know what they will be; these things are unpredictable by nature. …

So, how do we move forward in this sort of world?

[We need to] ask ourselves: How much economic chaos are we willing to accept in exchange for the small probability that we might get what we want out of economic policy? If your answer is “Not much,” then what you want is stable rules and as little policy uncertainty and regime uncertainty as you can achieve. But that means more or less swallowing something close to the whole of free-market economics like a goldfish and leaving very little room for the politicians to engage in policy entrepreneurship. It is easy to understand why politicians oppose that sort of thing.

But why ordinary functioning adults with a passing understanding of how the world works and without brain damage oppose it — and they do — is a mystery.

I’m starting my 27th year as a professor, and it was 9 years before that when I started thinking of being an economist as a career. When I started out I would have thought this viewpoint interesting, but I would have dismissed it as impractical. Two thirds of a lifetime spent watching politicians and bureaucrats get away with a balance shifted too far over towards motivations at the expense of attention to consequences has made me think it may be the only way for a country to consistently succeed.

Read the whole thing entitled “Why Walmart Is Reducing Worker Hours, After Raising the Minimum Wage — and Other Lessons in Reality Read more at:

Hat tip to Steve Karlson writing at Cold Spring Shops for bringing that article to my attention.

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