Oz Blog News Commentary

To overcome commonsense, and at the same time, to be wrong

January 9, 2019 - 22:44 -- Admin

As Orwell put it “there are some ideas so absurd that only an intellectual could believe them.” At least in economics one of the things that sets up intellectuals for this is the way so much of their discipline seeks to get ‘below’ the level of immediate intuition to something deeper. As my Dad once said, no doubt reciting some bon mot he learned at Chicago “there’s only one way to destroy a city more reliably than bombing and that’s rent control”. 

Certainly economists revel in their role as scolds of commonsense fallacy. As John Hewson is quoted as saying in Christine Wallace’s biography of him when he was Leader of the Liberal Party “As soon as you get an equilibrium approach to life, suddenly you realise that a lot of what you’d thought was wrong”. Everyone knows that trade restrictions create jobs. It’s a complicated subject of course, but most economists don’t think it does, or if it does, it does so at the cost of living standards and there are much better ways to create jobs. And, generally they’re right.

Still, you can be right in puncturing a common fallacy and still be wrong. This was Keynes case in the General Theory.

you can build a system out of some refutation of the the public’s commonsense, which, even though the refutation is correct, is still wrong. In a favourite passage of mine he reflects on mercantilism which his new theory had drawn him back to:

The mercantilists perceived the existence of the problem [of overcapacity and depression in an economy] without being able to push their analysis to the point of solving it. But the classical school ignored the problem, as a consequence of introducing into their premises conditions which involved its non-existence; with the result of creating a cleavage between the conclusions of economic theory and those of common sense. The extraordinary achievement of the classical theory was to overcome the beliefs of the “natural man” and, at the same time, to be wrong.

There are other examples of the same phenomenon.

Thomas Malthus in the late 18th century and Garrett Hardin in the 1960s spoke mounted very simple and powerful arguments focused on the way population growth would overwhelm productivity keeping most people in (Malthus) returning most people to (Hardin) penury. They might be proven right after all. But the world defied their prophecies in the half century following their articulation. Malthus is surely the unluckiest social scientist there’s been, arriving at a great insight into the force that had held the bulk of humanity at near subsistence for the whole of human history … just as it as being overcome. Living standards took off and today stand at around twenty times what they were when Malthus published.

Hardin’s tragedy of the commons became a mainstay in numerous disciplines. It’s part of economists’ commonsense today. Yet Hardin offered his prophecies without the slightest curiosity in how the things he spoke about had played out in the world. While Hardin’s trenchant conclusion was that commons should either be privatised or subjected to management by central government, numerous communities in countries rich and poor had evolved productive ways to manage the commons without recourse to either expedient. All this while backing policies like restricting welfare benefits and an end to “unqualified reproductive rights”.

And it turned out that, as we got richer, fertility plummeted.

For the last few decades the idea has grown in the public mind that we’re running out of resources. Everyone knows that we’re running out of resources. Surely growth like this can’t go on the way it’s going. Yet markets provide a pretty satisfactory way of responding at least in the medium term. As prices rise for increasingly scarce resources, human ingenuity is unleashed over a wide front, with users economising and seeking ways to substitute away from the scarcest resources. As a consequence of the counter-intuitive power of this argument, many economists like Julian Simon and Milton Friedman styled themselves as the scourge of the commonsense notion that endless growth must end disastrously. Their arguments were appropriate in their domain. And yet, at the same time, they were wrong. As we’re now observing, however effective the market might be at dealing with resource scarcity, it cannot on its own deal with excess superfluity. We are slowly poisoning our planet by making it a sink for our waste.

Analogously, however much I might be succeed in overcoming the general public’s commonsense that the economic free-rider problems unleashed by internet sharing are dwarfed by the opportunities to which it gives rise, man does not live by bread alone. In a quite different domain, the ease with which the internet enables cultural sharing, has loomed as a truly existential threat to modern life with greater speed than anything else hitherto imaginable except an asteroid strike. The professionalisation of persuasion and ‘issues management’ in the mainstream media, and now the more dramatic weaponisation of the same in social media is powering profound transformations in our political culture.

Isaiah Berlin made famous a distinction between two intellectual temperaments – the fox who knows many things and the hedgehog who knows one big thing. Malthus, Hardin, Friedman and Simon were hedgehogs. Keynes was a fox. The logic with which Malthus and Hardin saw the problem and impressed its importance on the world was both unimpeachable and powerful. And yet there was more than was dreamt of in their philosophy.

Other examples are most welcome in comments.