Economist-Man and His Never-Ending Battle

The economic way of thinking teaches us to look beyond the “good intentions” of government policy. Instead it brings into focus the unintended effects of those policies – effects that otherwise might elude us. [1]

The economist must educate the public on the actual consequences of public policies.

Suppose the public demands a higher minimum wage to benefit the working poor. The law is passed, workers earn a higher wage, and the public erroneously concludes that the law has unambiguously promoted human welfare. They are focusing only on the obvious effects of the law, and ignoring the secondary, often hidden and unintentional, effects.

The workers who are made better off by minimum wage laws – and yes, they do exist – are easily observable. The public frequently misses those who are made worse off, especially those who can no longer find employment at the higher mandated wage.

The economist must educate the public on the actual consequences of public policies like these. This way of thinking is often counterintuitive, and even when it is understood, it is often deeply unpopular.

Questioning Economic Thinking

Even worse, the most ardent opponents of this view of the economist’s public role are often economists themselves. Many economists who engage in public intellectualism are also scholars. The scholar’s goal is to get published in reputable scientific outlets, and the publication process almost always rewards novelty. As such, there is never any shortage of articles questioning not only particular conclusions of the economic way of thinking, but the economic way of thinking itself.

It is the first duty of economists in the public square to defend the economic way of thinking.

Some scholars suggest that humans may be so frequently irrational that economists can say very little about the consequences of particular public policies. Others argue – more than 200 years since Adam Smith! – that we know almost nothing about what makes some countries rich and some countries poor, and that the only way to find out is to run controlled experiments in developing countries to see what “works.”

These approaches are well-intentioned and can produce good scholarship. But they also damage economics as a discipline. If there is no constancy to human behavior – if there are no deep-level laws that describe how individuals attempt to make themselves as well off, as they see it, as they can – then there really is no such thing as economics as a discipline, because economics is fundamentally the study of human action.

To conclude that there are no fundamental laws of human behavior implies that the only thing preventing the world from looking exactly as we would like it to is political willpower. There are no natural constraints; there is only choice. There is no economic way of thinking; there are just particular empirical results, which may or may not be generalizable.

Protecting the Public from Themselves

It is the first duty of economists in the public square to defend the economic way of thinking over the wishful way of thinking and to educate the public about why many of our desires cannot be satisfied by adopting the policies that the public thinks will work.

The economist must engage in the unpopular task of protecting the public from itself.

In this sense, the economist is a public guardian who points out the constraints that often require us to make difficult trade-offs. Do we mandate a higher wage for entry-level jobs, knowing that a higher wage will benefit those who are skilled enough to earn that higher wage, while pushing those who aren’t out of the job market? Or do we eliminate the minimum wage so that more people can get jobs, even if those jobs don’t pay as well?

The economist must engage in the unpopular task of protecting the public from itself. This is often an activity that the public strongly dislikes. Nobody likes being told there is no such thing as a free lunch. But it is incredibly important. Unless someone reminds the public that free lunches are illusory, they may never figure out how to get a meal in the first place.

[1] As economist and educator Paul Heyne put it, the economic way of thinking starts with the realization that all social phenomena emerge from individuals’ purposeful decision-making, based on expected future costs and benefits.

Reprinted from Learn Liberty.