By James Kwak
After my post on Corey Robin’s new book, a friend recommended Albert O. Hirschman’s Rhetoric of Reaction. As the title suggests, the book is about the rhetorical style of conservative thought dating back to Burke. Hirschman identifies three common tropes: perversity (that great-sounding progressive idea you have will have the opposite of its intended effect), futility (that great-sounding progressive idea won’t change anything, because you don’t understand the fundamental laws of the world), and jeopardy (that great-sounding progressive idea will destroy some other thing that we all agree is valuable, making everyone worse off in the end). Hirschman doesn’t dwell on this specific point, but it’s obvious that, similar to the argument Robin makes, these rhetorical devices can only exist in opposition to some progressive reform movement.
I thought the description of the contemporary form of the perversity thesis (e.g., welfare programs create poverty) was especially good. “Here the failure of foresight of ordinary human actors is well-nigh total as their actions are shown to produce precisely the opposite of what was intended; the social scientists analyzing the perverse effect, on the other hand, experience a great feeling of superiority—and revel in it” (Belknap Press, 1991, p. 36). This seems to me an accurate description of why the Economics 101 ideology is so powerful. People get a sense of superiority from owning counter-intuitive theoretical insights—even if those insights are wrong.
For example, Economics 101 was all over the health care reform debate, arguing that if we make people pay more for their marginal health care, they will consume less and our cost problem will be solved. But it doesn’t work that way in real life. Atul Gawande wrote an article describing how higher co-pays reduced spending for most employees, but increased it significantly for the most expensive employees. The solution, according to the people profiled in his article, is to give the highest-consuming people more primary health care, which reduces the amount of catastrophic care they need.
Then there’s Frank Easterbrook, the king of Economics 101, asserting in Jones v. Harris Associates that there’s no way that people can be paying excessive mutual fund fees because market prices are set by sophisticated investors (and citing a purely theoretical law review article).
But as a cocktail party debating point, nothing beats “If you make people pay more to see the doctor, they’ll see the doctor less”—which is even better when backed up by a pair of supply and demand curves on a napkin.
This isn’t a criticism of economics in general. As I’ve noted before, people with Ph.D.’s in economics tend to be less doctrinaire about Economics 101 principles than undergraduate economics majors. It’s a criticism of how facile economic logic gets used in public debate.