The Lesson

The Lesson
ECONOMICS IS HOUNTED by more fallacies than any other study
known to man. This is no accident. The inherent difficulties of
the subject would be great enough in any case, but they are
multiplied a thousandfold by a factor that is insignificant in,
say, physics, mathematics or medicine—the special pleading of
selfish interests. While every group has certain economic interests
identical with those of all groups, every group has also,
as we shall see, interests antagonistic to those of all other
groups. While certain public policies would in the long run
benefit everybody, other policies would benefit one group only
at the expense of all other groups. The group that would benefit
by such policies, having such a direct interest in them, will
argue for them plausibly and persistently. It will hire the best
buyable minds to devote their whole time to presenting its case.
And it will finally either convince the general public that its
case is sound, or so befuddle it that clear thinking on the subject
becomes next to impossible.
In addition to these endless pleadings of self-interest, there is
a second main factor that spawns new economic fallacies every
day. This is the persistent tendency of men to see only the
immediate effects of a given policy, or its effects only on a
special group, and to neglect to inquire what the long-run
effects of that policy will be not only on that special group but
on all groups. It is the fallacy of overlooking secondary consequences.
In this lies the whole difference between good economics and
bad. The bad economist sees only what immediately strikes the
eye; the good economist also looks beyond. The bad economist
sees only the direct consequences of a proposed course; the
good economist looks also at the longer and indirect consequences.
The bad economist sees only what the effect of a given
policy has been or will be on one particular group; the good
economist inquires also what the effect of the policy will be on
all groups.
The distinction may seem obvious. The precaution of looking
for all the consequences of a given policy to everyone may
seem elementary. Doesn't everybody know, in his personal
life, that there are all sorts of indulgences delightful at the
moment but disastrous in the end? Doesn't every little boy
know that if he eats enough candy he will get sick? Doesn't the
fellow who gets drunk know that he will wake up next morning
with a ghastly stomach and a horrible head? Doesn't the dipsomaniac
know that he is ruining his liver and shortening his
life? Doesn't the Don Juan know that he is letting himself in for
every sort of risk, from blackmail to disease? Finally, to bring it
to the economic though still personal realm, do not the idler and
the spendthrift know, even in the midst of their glorious fling,
that they are heading for a future of debt and poverty?
Yet when we enter the field of public economics, these
elementary truths are ignored. There are men regarded today
as brilliant economists, who deprecate saving and recommend
squandering on a national scale as the way of economic salvation;
and when anyone points to what the consequences of these
policies will be in the long run, they reply flippantly, as might
the prodigal son of a warning father: " In the long run we are all
dead." And such shallow wisecracks pass as devastating epigrams
and the ripest wisdom.
But the tragedy is that, on the contrary, we are already
suffering the long-run consequences of the policies of the remote
or recent past. Today is already the tomorrow which the
bad economist yesterday urged us to ignore. The long-run
consequences of some economic policies may become evident
in a few months. Others may not become evident for several
years. Still others may not become evident for decades. But in
every case those long-run consequences are contained in the
policy as surely as the hen was in the egg, the flower in the seed.
From this aspect, therefore, the whole of economics can be
reduced to a single lesson, and that lesson can be reduced to a
single sentence. The art of economics consists in looking not merely at
the immediate but at the longer effects of any act or policy; it consists in
tracing the consequences of that policy not merely for one group but for
all groups.
Nine-tenths of the economic fallacies that are working such
dreadful harm in the world today are the result of ignoring this
lesson. Those fallacies all stem from one of two central fallacies,
or both: that of looking only at the immediate consequences of
an act or proposal, and that of looking at the consequences only
for a particular group to the neglect of other groups.
It is true, of course, that the opposite error is possible. In
considering a policy we ought not to concentrate only on its
long-run results to the community as a whole. This is the error
often made by the classical economists. It resulted in a certain
callousness toward the fate of groups that were immediately
hurt by policies or developments which proved to be beneficial
on net balance and in the long run.
But comparatively few people today make this error; and
those few consist mainly of professional economists. The most
frequent fallacy by far today, the fallacy that emerges again and
again in nearly every conversation that touches on economic
affairs, the error of a thousand political speeches, the central
sophism of the "new" economics, is to concentrate on the
short-run effects of policies on special groups and to ignore or
belittle the long-run effects on the community as a whole. The
"new" economists flatter themselves that this is a great, almost a
revolutionary advance over the methods of the "classical," or
"orthodox" economists, because the former take into consideration
short-run effects which the latter often ignored. But in
themselves ignoring or slighting the long-run effects, they are
making the far more serious error. They overlook the woods in
their precise and minute examination of particular trees. Their
methods and conclusions are often profoundly reactionary.
They are sometimes surprised to find themselves in accord
with seventeenth-century mercantilism. They fall, in fact, into
all the ancient errors (or would, if they were not so inconsistent)
that the classical economists, we had hoped, had once and for
all got rid of.
It is often sadly remarked that the bad economists present
their errors to the public better than the good economists
present their truths. It is often complained that demagogues
can be more plausible in putting forward economic nonsense
from the platform than the honest men who try to show what is
wrong with it. But the basic reason for this ought not to be
mysterious. The reason is that the demagogues and bad
economists are presenting half-truths. They are speaking only
of the immediate effect of a proposed policy or its effect upon a
single group. As far as they go they may often be right. In these
cases the answer consists in showing that the proposed policy
would also have longer and less desirable effects, or that it could
benefit one group only at the expense of all other groups. The
answer consists in supplementing and correcting the half-truth
with the other half. But to consider all the chief effects of a
proposed course on everybody often requires a long, complicated,
and dull chain of reasoning. Most of the audience finds
this chain of reasoning difficult to follow and soon becomes
bored and inattentive. The bad economists rationalize this
intellectual debility and laziness by assuring the audience that it
need not even attempt to follow the reasoning or judge it on its
merits because it is only "classicism" or "laissez faire" or
"capitalist apologetics" or whatever other term of abuse may
happen to strike them as effective.
We have stated the nature of the lesson, and of the fallacies
that stand in its way, in abstract terms. But the lesson will not
be driven home, and the fallacies will continue to go unrecognized,
unless both are illustrated by examples. Through these
examples we can move from the most elementary problems in
economics to the most complex and difficult. Through them we
can learn to detect and avoid first the crudest and most palpable
fallacies and finally some of the most sophisticated and elusive.
To that task we shall now proceed.