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Thursday, April 1, 2010

Cartoon Economic Policy

Wishing won't do it.


Congress recently passed a bill that will substantially increase the government’s discretion over health care.  How can we better understand it?  The cartoons South Park and The Care Bears can teach us an important lesson about economics and politics.  And in so doing, they also caution us about why we need to take such topics more seriously than cartoons do.

In a classic episode of South Park the boys have to write a paper about corporations.  They end up encountering a group of underpants gnomes who have a detailed business plan:

1.  Collect Underpants

2.  ?

3.  Profit

The health care bill is like the “Underpants Gnomes” episode of South Park.  Enthusiasts for the bill have the following model in mind:

1.  Pass Health Care Bill

2.  ?

3.  Health Care for All

So we have passed the bill.  Its supporters need to ask the question that informs Thomas Sowell’s Applied Economics: “And then what?”  Talking solely about the goals of institutional changes is likely to lead us to error.  We have to talk about what those changes do to social processes. Government intervention removes decision-making power from individuals acting through voluntary channels and gives that power to moral and intellectual surrogates acting through involuntary channels.

Effective economic and political institutions are ones that provide both the incentives for people to pursue their own good by serving others and the knowledge of which actions will do so.  In the world of the underpants gnomes, and the world of health care reform, such questions are not asked.  Results are expected to magically appear from good intentions.

In short, a lot of people focus their energy and attention on the goal of “health care for everybody” without really thinking hard about the steps between passage of the bill and what they want to happen.  Applied economics, according to Sowell, is the art of “thinking past stage one,” and our refusal to do that will cost us trillions of dollars. The previous administration failed to think past Stage One when it started writing checks for wars of questionable merit and for bailouts of financial firms.  The current administration has continued the trend with health care reform.

The Care Bears are kind of like the underpants gnomes in that they too think good intentions are enough.  They fight evil with what is called “The Care Bear Stare.”  Wikipedia explains:

The Care Bears’ ultimate weapon is the “Care Bear Stare,” in which the collected Bears stand together and radiate light from their respective tummy symbols. These combine to form a ray of love and good cheer which could bring care and joy into the target’s heart.

This describes the shallowness of a lot of public-policy debates.  Rather than focusing on the processes by which social decisions are made, people debate the merits of proposed legislation based on their intended outcomes, and this frames opposition to well-meaning legislation as follows: People who want the legislation are kind and good; people who don’t want it are either evil or corrupt or they just don’t want to share.  One need only examine the rhetoric coming from the pro-ObamaCare side in the final congressional debates to see this in action.

Reality is more subtle.  Good intentions are neither necessary nor sufficient to ensure that we get the outcome we want.  Careful consideration of the actual economic institutions that “reform” creates and how they will affect the incentives and knowledge facing individuals and firms is the only way to get past Stage One.  Judging legislation by its intentions and not engaging in real social scientific analysis is the equivalent of using the Care Bear Stare.  And when trillions of dollars, most of it coming from the future wealth of our children, is on the line, it is the height of irresponsibility.

We predict that future economics textbooks will look back on the disaster that emerges from the so-called “health care reform” as a classic example of the law of unintended consequences and, we hope, of the difference between decision-making in politics and decision-making in markets.    We should not be surprised to find out that when we approach serious social issues with the mindset of cartoon characters that our economy quickly begins to resemble a cartoon.  In this case, we fear we that in spending trillions on intentions, we have become like Wile E. Coyote running off the cliff and hanging in midair until he realizes the situation he’s created for himself, at which point he comes crashing down.

  • Art Carden is a Professor of Economics, author, and co-editor of the Southern Economic Journal.
  • Steven Horwitz was the Distinguished Professor of Free Enterprise in the Department of Economics at Ball State University, where he was also Director of the Institute for the Study of Political Economy. He is the author of Austrian Economics: An Introduction.