Adventures in Economic Fairyland

Sometimes it’s easier to believe economic myths than realities

The first thing a man will do for his ideal is lie. —Joseph Schumpeter

One of the most intractable problems of economics is not that it’s a dismal science, although that can be true. It’s that it’s easy to use the discipline to justify telling people what they want to hear.

There is a Wizard of Oz quality about economics, especially these days. Data are treated as tea leaves or Rorschach blots. Macroeconomists, in particular, have become an elite cadre of charlatans. These accusations may seem unfair coming from an organization called the Foundation for Economic Education. But as Hayek wrote, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." We take that task very seriously.

In other words, practitioners of economics not only use numbers to mislead the public; they use both theory and data to self-deceive. This may sound harsh. But no social scientist can operate free of his own values and biases. We all do it. The question is, to what extent do our biases interfere with our understanding of the world around us? And if no one is able to break the spell of ideology, how can we be better truth seekers despite our colored lenses?

Unfortunately, most people crave palatable narratives a lot more than they crave truth. And once a narrative starts to spread — right or wrong (and usually wrong) — it can infect the national psychology for years. Don’t believe us?

Ask yourself which of the following are accepted as common knowledge:

  • Government spending make-work programs got the United States out of the Great Depression.
  • Scandinavian countries are proof that you can have high taxes and income redistribution without negative economic effects.
  • International trade makes some countries richer and others poorer.
  • Encouraging consumer spending stimulates the economy.
  • Minimum wages have a net positive effect on employment and on the living standards of the poor.

Most economic myths like the examples above have one or two of a few common features that make them good candidates as memes:

  1. They offer the illusion of control by experts.
  2. They offer the illusion that the economy can be fixed.
  3. They seem plausible or intuitive.
  4. They seem motivated by good intentions.
  5. They are just-so stories that can be “proven” by data legerdemain.
  6. They provide the wielder with a “gotcha” or “told ya so” in arguments.
  7. They can be reinforced by technically obscure, impenetrable studies.
  8. They reinforce what we wish were the case.
  9. They are costly to debunk.
  10. They are easy to remember and share.

So what do we do about these myths? Thus far, it seems we have been tasked with something rather insurmountable.

Let’s assume that the sort of economics we propound in these pages is almost entirely correct and overwhelmingly tracks with the truth. Sure, we are biased. But let us stipulate that we are biased toward reality, not ideology or fantasy.

If we are in the business of educating people about the truth, is ours too costly and difficult a road? How many of the 10 qualities of the false narratives above do our counternarratives have? By our estimation: not many. Unfortunately, educating people about phenomena that are counterintuitive, not-so-easy to remember, and suggest our individual lack of human control (for starters) can seem like an uphill battle in the war of ideas.

So we sally forth into a kind of wilderness, an economic fairyland. We are myth busters in a world where people crave myths more than reality. Why do they so readily embrace untruth? Primarily because the immediate costs of doing so are so low and the psychic benefits are so high.

If we are on the side of truth in economic matters, we have to be more creative in how we demonstrate such truths. We have to tell better stories, use better illustrations, use metaphors and cognitive shortcuts that help us with the immensity of this task. And we have to be prepared to stay engaged in an ideological struggle that will last long after we have passed from this life.

Further Reading

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