Economists Are Skeptics, Not Cynics

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Since Oscar Wilde defined a cynic as “A man who knows the price of everything, but the value of nothing” in Lady Windermere’s Fan (1892),” economists have often been called cynics, commonly as justification for ignoring them whenever they oppose someone’s latest political diagnosis or panacea.

However, one cannot dismiss economists as mere cynics who can safely be ignored. A better description would be that economists tend to be justified skeptics of claims, and government prescriptions based on them, that are at odds with economic principles.


Actions Speak Louder Than Words

Perhaps the strongest reason to call economists cynics is that they don’t necessarily believe what someone says, just because they say it. That runs afoul of people’s desires to have what they say accepted without question. Yet there are reasons for justifiable skepticism about much that is said.

Economists simply know claims inconsistent with actions justify a very high degree of skepticism.

One reason is that people can be self-deceived, reflecting their self-interest in feeling good about themselves (in contrast with Saint Paul’s warning not to think more highly of ourselves than we ought). We often do what we want, and invent a story to rationalize to ourselves why it was justified. Since we also want others to think well of us, we may further embellish that story for them. The result is that when someone “explains” why something should be done, as with politics, where success depends on public perception, it can easily reflect compounded misrepresentations.

In contrast to what may be said, when a self-interested person agrees to an exchange, it reveals the truth about the relative values they place on the alternatives, given their circumstances, because they must actually give up one thing for another. That is why economists tend to take the opposite approach from what my dad told me when I was learning to golf: “Do as I say, not as I do.” They look to see if what is done comports with what is said, and when they are in conflict, they will believe what someone does over what they say. So someone who is self-deceived, or deceiving others, may resort to ad hominem attacks on economists who noticed, but such name-calling does not make them cynical. Economists simply know claims inconsistent with actions justify a very high degree of skepticism.

This is frequently illustrated by people asserting altruistic reasons for favoring policies that advance their own narrow self-interest (though they seldom note that fact). Economists recognize self-interest (not necessarily the same as selfishness, but not inconsistent with selfishness, either) as a universal motivator for choices, while altruism acts with much less constancy. So when an altruistic explanation is put forward to justify political support, but it also advances a proponent’s narrow self-interest, economists tend to reject the altruistic explanation. And when a proponent’s self-interest is advanced, while the supposed altruistic purpose may not be, altruism will be rejected even more strongly.

For example, unions push for raising minimum wages to “help the poor.” However, minimum wages benefit unions and their membership by increasing the price of substitutes for their labor services, increasing the demand for union members’ services and thus their earnings. They also harm many of the poor (via reduced jobs, hours, fringe benefits, opportunities, etc.) whose interests are allegedly advanced. The negative effects of many other union-backed policies on the poor (e.g., protectionism against lower-cost imports) also undermines belief in altruism for the poor as their motivation.

No Free Lunches

Economists also know that scarcity is an unavoidable fact. Consequently, there are no free lunches. Yet every time someone promises something for nothing, they are promising a free lunch, making economists justifiably skeptical. This is why the ultimate test of what government could do to advance the general welfare is what people all accept that government could do better for them than they could with their own resources, even though government agents know you less well and care about you than you do. That small (and perhaps empty) set includes the only things that could jointly advance everyone’s “general welfare,” as all other government actions require imposing harm on some to create coercive charity for others.

Economists recognize that no policy can change just one incentive.

Scarcity is also one reason why economists are wary of political “solutions.” There is no solution to scarcity. There are only tradeoffs at the margin, where some valued things are given up—problems made worse–for other things considered more valuable. But individuals disagree dramatically about the values of both what is given up and what is received in exchange. And without market choices revealing such information through the voluntary interactions among individuals, central planners cannot know anywhere near as much relevant information as the voluntary interaction of individuals reveals (thus centrally planning in a society must effectively throw away that immensely valuable information), undermining their ability to advance citizens’ well-being in fact, even if they intend to “do good.”

Incentives Matter

Further, economists recognize that no policy can change just one incentive. Not only are there many margins of choice that a changed policy will alter for those directly affected, many unrecognized by those not expert in the relevant fields (including politicians), but their responses in those areas will alter the incentives facing others, including still more unnoticed margins. That is why the “law of unintended (adverse) consequences” so frequently produces results sharply at variance with “reformers” hopes and utopian imaginings.

Another basic principle of economics is that there are substitutes for everything—for enough of other goods and services someone values, they would be willing to give up at least some of another good or goods. That means that every time the language of needs, musts, having no substitutes, etc., is used, it is necessarily seriously misleading about the choices faced, typically with the purpose of forcing B to pay to provide something A wants but does not want to pay for.

One of the most common shorthand terms for economic analysis is that “incentives matter.” When the benefits someone expects at the relevant margin increase, or the costs they expect to bear decrease, they will do more of it, other things equal. But politicians constantly promise a plethora benefits from worsening peoples’ incentives to do productive things for each other (e.g., Hillary Clinton’s claim that trillion-dollar tax increases would lead to a vast expansion of output). Whenever worsened incentives are promoted as increasing well-being, it requires a reversal of which way economists recognize that incentives matter.

If someone claimed 2 + 2 = 5, for a mathematician to dispute that claim or deductions from it would not indicate cynicism.

In a similar vein, economists also recognize that voluntary trades require both buyers and sellers to agree. Politicians often ignore the incentives facing the relevant parties in describing policy effects. For instance, politicians say raising the minimum wage, other things equal (which they will not be), would make low-skill people want to work more. However, economists also recognize that such a change will be irrelevant to the actual results, because employers will hire fewer labor hours when the minimum wage raises the costs of doing so relative to other alternatives. Similarly, rent controls are defended as making renters better off because rents will be lowered. However, economists also recognize that landlords will offer fewer units at forcibly lowered prices, harming many would-be renters. But politicians persist in making such misleading, as well as mutually inconsistent, arguments.

Policy and Economic Principles

The examples given here come nowhere close to exhausting the areas in which supposedly cynical economists are really justifiably skeptical of things that are inconsistent with core principles of economics, whose recognition cannot be dismissed by one-liner put-downs. They do, however, illustrate how frequently policy stupidity is based not on esoteric issues or sophisticated reasoning, but on violating basic economic principles.

If someone claimed 2 + 2 = 5, for a mathematician to dispute that claim or deductions from it would not indicate cynicism. It would indicate competent command of the relevant information that the claimant lacked. When someone points out similar mistakes that derive from failures to understand or apply core issues of economics, it does not make them cynics, either, even though the far higher frequency of political claims that amount to 2 + 2 = 5 emanating from government circles, and those who would use government’s coercive power for their own ends, forces economists to display their justifiable skepticism far more often.

Gary M. Galles

Gary M. Galles

Gary M. Galles is a professor of economics at Pepperdine University. His recent books include Faulty Premises, Faulty Policies (2014) and Apostle of Peace (2013). He is a member of the FEE Faculty Network.

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