A meme going around states that some number of Nobel laureate economists assert that Biden’s “Build Back Better” plan will improve the lot of everyone. Here’s a thought about why the most brilliant economists might not have gotten that right.
In my most-recent column for AIER, I distinguish one kind of economists from a second kind. The first, as did Adam Smith, spend much of their time debunking fallacies embraced by the man-in-the-street; the second specialize in spinning intricate theoretical justifications to support man-in-the-street superstitions.
Economic reality being complicated, it’s nearly always true that a set of conditions can be imagined under which outcomes that are highly improbable in reality can be shown to be possible. Conditions can be described under which, in reality, it’s possible for protective tariffs or export subsidies to result in greater prosperity in the home country. Yet such conditions are wholly implausible.
Possibility, be aware, is a very weak standard. Almost every outcome that is possible – such as you surviving a fall off of a skyscraper because you luckily land in a huge drift of freshly fallen snow – will never occur. And so just because some outcome is possible doesn’t mean that it’s plausible. Furthermore, just because some outcome is plausible doesn’t mean that it’s probable.
Every undergraduate econ major learns by her junior year how to draw a graph depicting a minimum wage having only positive, and no negative, effects on low-skilled workers. And if well-taught, this econ major also learns that the conditions under which such a graph describes reality are highly implausible. But no matter. Because the public’s desire to believe in the goodness of minimum wages is so intense, the supply is ample of anti-Smithian economists willing to satisfy this desire – willing to assure the man-in-the-street that his utter ignorance of economics is, in fact, economic brilliance.