Tuesday, August 11, 2020

In the Pandemic, a Little Bit of Economic Knowledge Is Even More Dangerous Than Usual

by Neil H. Buchanan

Watching Republican politicians try to talk about economics is a combination of hilarious and terrifying.  With few exceptions, they are mouthing talking points that they do not understand, hoping to sound intelligent by intoning phrases like "incentivizing people not to work," "fiscally irresponsible borrowing," or "inefficient allocation of resources."  Their only true skill is figuring out how to dodge followup questions from reporters.

Of course, there are also many Democrats who similarly know nothing but what staffers have written for them, which means that it is not in fact the politicians who are making themselves themselves look good or bad.  Ultimately, what matters is whether the talking points themselves are actually defensible.
 
And one genuine public service that Republicans have performed over the past generation is proving that -- spin or no spin -- they as a group have zero understanding of how economics works.  This unwillingness to learn is especially surprising, moreover, because they have lived through two huge real-life lessons (the Great Recession of 2009-10 and the Trump-fueled disaster of 2020-22) that amply demonstrate that Republicans' obsession with punishing people for losing their jobs (among many other articles of conservative faith) makes no sense -- and is cruel to boot.

Even though the Republicans' bad economic ideas are thus not a matter of particular individuals making analytical mistakes, however, there are occasionally some politicians who try to hold themselves out as brilliant thinkers who understand economics better than everyone else.  The thankfully-former House Speaker Paul Ryan was a particularly sad and destructive case of a B or B+ undergraduate student who thought that he should have written the textbook, but current Senator Rand Paul is in some ways even worse.

At the beginning of my Verdict column last week, "Economic Theory Shows that People Will Make Choices that Worsen the Pandemic," I discussed Republicans' insane belief that unemployment benefits cause people not to take jobs (that do not exist).  Because that was relatively familiar ground, however, I then turned to an especially silly public performance by Rand Paul, where he debuted what one might call his "My expert is better than your expert, but screw experts, anyway!" approach to the pandemic.

Here, I will briefly go back over the particulars of what Paul said, in order to center the discussion.  More importantly, however, it is important to discuss the larger disease of which Paul's outburst is merely a symptom: the belief among conservatives that "economics proves" that government is always the problem.  Paul extends that faith-based belief into epidemiology, which is dangerously absurd but also usefully exposes the logical fallacy on which he and his cult rely.
 
Paul's sneering performance -- admittedly an apt description of virtually all of his public appearances -- came in a committee hearing at which Republicans decided to attack their own president's expert witness, Dr. Anthony Fauci.  There, Paul decided to lecture Fauci on the virtues of modesty.  (It is okay to laugh: Rand Paul -- Rand Paul -- told someone else to stop being immodest!)  The problem, in Paul's telling, is that smarty-pants experts think they are so darned brilliant but might be wrong and end up doing harm.

Paul's solution to the possibility that experts in general might be wrong, and specifically that experts in epidemiology might not be right all the time about epidemiological questions?  Invoke an expert -- but not an expert with any training in epidemiology (or any of the medical sciences) at all.  Thrilling his small band of true believers who think that turgid novels by an anti-religious, pro-abortion Russian emigree are the revealed word of not-God, he invoked another of their heroes, Friedrich von Hayek.  Why is Hayek relevant?  Paul:
"Hayek had it right: Only decentralized power and decision-making, based on millions of individualized situations, can arrive at what risks and behaviors each individual should choose. That’s what America was founded on—not a herd with a couple of people in Washington all telling us what to do, and we like sheep blindly follow."
So the lesson that Paul took from Hayek is in fact a steroid-raging version of Adam Smith's completely misunderstood Invisible Hand.  But whereas Smith went to great lengths (both in The Wealth of Nations and in his The Theory of Moral Sentiments) to explain the limitations of hoping that the aggregation of individual self-interest can lead to the best social outcome, Hayek (or at least Paul's reading of Hayek) would have us believe that only people's individual decisions -- without experts "telling us what to do" -- can guide us to the best result.

Note that Paul's argument is essentially circular, because he says that we can only know "what risks and behaviors each individual should choose" by seeing what millions of people choose.  In this telling, decentralized power and decision-making is right because it is right, not because it actually maximizes or minimizes particular social outcomes like safe social interactions or disease transmission.  If people "should" choose what they choose, then apparently the story is over.  You do not need Smith, Hayek, or anyone else to testify to a tautology.

Suppose, however, that Paul did not intend to create that tautology but was instead trying to sound smart by repeating what he hears within his anti-government sect.  I suspect that Paul would stand by his tautology, but to be generous, maybe he merely meant to say that "people in Washington" (or presumably any state capital or any city hall) should not "intervene" in private decision making?

As I explained in my Verdict column, the problem for Paul's assertion is that most of the economics profession long ago admitted that the aggregation of individual decision-making can be disastrous.  Even economists who would happily show up at Ayn Rand conventions have been trained in the economics of "market failure" -- a phrase that is dangerously misleading in that it presumes that markets generally do not fail and that we need only understand how to return to an ideal laissez-faire state of nature but that at least takes seriously the idea that markets might possibly not lead us to Eden every day in every way.

But especially in public health, market failures are the norm rather than the exception.  Everything that we have seen in the United States in 2020, by contrast to the countries that have successfully combated the coronavirus pandemic, demonstrates that even well meaning people often make individual decisions that are disastrous not only for everyone else but also for themselves.  Nobody wants to make themselves or other people sick (or so I insist on believing), but people nonetheless predictably engage in various levels of denial and fail to consider the external effects of their actions (and the resulting feedback effects on themselves), which leads to disease transmission.

This problem is merely one example of a more general phenomenon that is familiar to anyone who thinks about littering, burning waste in one's back yard, throwing battery acid in streams, or anything else in which individuals' immediate interest in avoiding effort and expense leads them to do damaging things unless they are prohibited from doing so.
 
And even in situations where group action can lead to positive results, selfish actions can defeat the group's interest.  For example, conservatives long lauded the idea of giving workers an ownership interest in their employers' profits, on the theory that each worker would have an incentive to work harder and thus to increase everyone's profits.  Nice theory, but no.  In any company with more than a tiny number of employees, each worker understands that free riding is still the best strategy, because he can still get his cut of the increased profits without actually expending effort of his own.  A race to the bottom ensues.

To be clear, Rand Paul is not the only person with a mangled understanding of the nature of incentives.  Earlier this summer, I watched a segment on "Amanpour & Co." in which an economist (whose name I will not invoke here, because the point is not to call him out individually) expounded on his thesis that American universities are doomed.  It was the usual litany of half-truths occasionally combined with genuine reasons for concern about the future of higher education, but what caught my attention was his smirking observation that universities pay professors the most when the professors are older and are (at least according to that economist) less productive.  Dumb, right?

No, not at all.  There is a perfectly sound incentive-based story under which younger people in a profession are promised that success will lead to ever-rising compensation.  In essence: "Work hard while you're young, and although you'll be underpaid at first, you'll be made whole in the end."  One can argue that universities do not have the balance exactly right, but pointing out that pay and productivity are not perfectly correlated year by year proves nothing.
 
There is every reason to believe, in fact, that the promise of future compensation reduces wasteful job turnover, all the while encouraging younger people to earn their stripes.  That, in fact, is one explanation for so many talented people working in government over the years, because the relatively low salaries have typically been balanced by relatively good retirement benefits -- when the workers are, by definition, no longer productive at all.  (Republicans, of course, want to reduce those benefits.)

This example also helps to make clear that I am not disparaging Rand Paul (or Paul Ryan) for not being trained economists.  The "Amanpour & Co." guy is a professor at a top university, but he (either negligently or strategically) presented a slightly complicated incentive structure in misleadingly simplistic terms.  Having a Ph.D. is no guarantee of anything.  After all, Donald Trump's economics team includes the non-economist Larry Kudlow as well as the Harvard economics Ph.D.-holding Peter Navarro, but it is difficult to determine which of the two is more dangerous.  Recently re-departed Trump advisor Kevin Hassett holds a Ph.D. in economics from Penn, yet he not only strategically misuses economics but also red-baits his opponents.
 
The point, then, is not that Paul is untrained in economics.  It is true that he acts as if he knows everything about the field while knowing virtually nothing, but that does not differentiate him from plenty of people of his ideological leanings who actually do have professional credentials.
 
What is actually at work in the case of people like Paul is that they simply insist on believing in the fantasy of a "no government" world.  He wants us to imagine that a world without "people in Washington telling us what to do" is even possible, whereas in reality we are always deciding how to set up rules that will allow people to interact in ways that advance the public good.  "Like sheep," people stop at red lights and put their garbage in bins by the curb, because some experts have decided that not having traffic laws or organized sanitation would be a disaster -- not in spite of but explicitly because of decisions "based on millions of individualized situations."
 
And what about situations in which Paul and his fellow travelers affirmatively want the government to limit people's choices?  Why, for example, does Paul favor legislation making it impossible for people to sue employers even if the employers provide workplaces in which workers contract COVID-19?  It seems pretty heavy-handed, after all, for the government to be telling private parties who can sue whom over what.  But of course, the very existence of courts in which to sue was a decision informed by knowledgeable experts who understood that allowing people to sue for damages is better than the alternative, which too often leads to lawless retribution.

Even on the most basic questions, then, Paul's professed understanding of Hayek's argument is nonsense.  There have to be rules, and those rules will shape the way that people make decisions.  Saying "government bad" is empty blather.  Moving from those most basic questions about how to set up an economy to how to respond to a global pandemic makes it even more obvious that Paul's childlike faith in rule-free individuality is a recipe for continued death, justified by antisocial pathology.