Dr. Pangloss, Economist
Mar 24, 2014
3 Min read time
In a perhaps unintentionally revealing column in Sunday’s New York Times, Harvard’s Gregory Mankiw prescribes the philosophy of the humble economist. Human behavior is complex and economics is a science “like medicine two centuries ago”—better than other tools for diagnosing and correcting certain deficits in human affairs, but highly imperfect. Therefore, “We economists should be sure to apply the principle ‘first, do no harm,’” Mankiw writes. “This principle suggests that when people have voluntarily agreed upon an economic arrangement to their mutual benefit, that arrangement should be respected.” Mankiw, who was chairman of President George W. Bush’s Council of Economic advisers, goes on to apply that principle:
As I see it, the minimum wage and the Affordable Care Act are cases in point. Noble as they are in aspiration, they fail the do-no-harm test. An increase in the minimum wage would disrupt some deals that workers and employers have made voluntarily. The Affordable Care Act has disrupted many insurance arrangements that were acceptable to both the insurance company and the insured.
I get it. Let’s extend that principle further back: ending child labor would disrupt some deals that working families and employers have made voluntarily; ending the 60-hour work week (not to mention requiring benefits or pensions or compensation for on-the-job injury) would disrupt some deals that workers and employers have made voluntarily; ending extortionate loans would disrupt some deals that borrowers and lenders have made voluntarily; laws giving wives ownership of the property they brought to marriages would disrupt arrangements that were acceptable to both husbands and wives; ending the debt peonage of southern sharecroppers would disrupt some deals that workers and employers have made voluntarily; ending feudalism would disrupt arrangements that were acceptable to both serf and noble; etc.
There are great improvements in human welfare yet to be made, especially for the less powerful, over the seemingly optimal arrangements of today.
Mankiw’s logic seems to be that the arrangements we see at any given time must by definition be acceptable to the parties involved. We should therefore assume, unless proven otherwise, that the existing arrangements are the best of all possible arrangements.
Missing in this formulation are the actual wishes of the parties. People might want higher incomes, safer jobs, or insurance that does not bankrupt them. Maybe we should add into the formulations something about what the “patients” want—to the extent that they can even imagine better conditions. Before Medicare, not that many Americans could imagine government-secured health care for their old age. Now you’d have to pry it from the cold, dead hands of even Tea Partiers.
Which points to another missing component of Mankiw’s calculation: options. Some economists criticize government when it closes options. For example, because of housing codes, you may not buy a house with six-foot ceilings and without running water. But markets, too, limit options. They, for example, do not generate many innovative products; those emerge mostly from government-funded R&D. And markets are especially inept at providing options to those of low income. Government pays, for example, for poor children’s schooling.
Also omitted from Mankiw’s analysis is power. Few individual workers have real leverage against employers; most workers are replaceable. Individual consumers, similarly, have little leverage, or even information, to use against corporate sellers. (These imbalances exist even when there is no tacit or explicit collusion among employers or sellers, as there often is.) As strikers a century ago repeatedly learned from encounters with National Guard troops, they could join together and still be relatively powerless.
Granted that intrusions into existing, supposedly “acceptable” and “voluntary” arrangements often do backfire. But one lesson from western history of the last century or two is that there were great improvements in human welfare yet be made, especially for the less powerful, over the seemingly optimal arrangements of the day. If medicine had been as devoted to doing nothing in the face of awful but uncertain realities as Mankiw seems to be, we’d still be living in the health equivalent of a laissez-faire world.
March 24, 2014
3 Min read time