All Commentary
Tuesday, August 1, 1995

The Economics of Good Intentions

Should Good Intentions Play Any Role in Government Policy?

Joe Cobb is the Heritage Foundation’s John M. Olin Fellow in Economics. Thomas Sowell’s book, A Conflict of Visions (1987), is highly recommended for a more detailed discussion of the ideas in this essay.

Lawmakers often accuse one another of bad motives, or misguided proposals to help the wrong people. But anyone who runs for political office has some ideals about making the world a better place in which to work and raise a family.

The economics of good intentions can be seen all around us in every government program that calls for direct action to solve social problems. Every debate is about good intentions versus actual good or bad results. These arguments separate liberals from conservatives, Democrats from Republicans, and “compassionate” activists from their “special-interest” opponents.

Appearances vs. Reality

Good intentions have to contend with the very real economic forces of self-interest. The government can command and regulate people, but the direct use of mandates often fails because the indirect results of a free market system can have more powerful, contradictory effects. Some government policies, enacted with benevolence, just fail, or worse, they produce opposite results from the lawmakers’ good intentions.

For example, it might seem like a good idea if workers at the bottom of the wage scale could receive more income. Hence, the administration proposed to increase the minimum wage for low-income workers. But what if a law against low wages resulted in fewer jobs for low-productivity workers? Reducing tax rates on successful business investments could encourage jobs, but it might make the richest members of society better off. Would that hurt anyone, or just appear to favor the wrong people?

Economists study how a market coordinates the indirect results of many different unrelated actions and their unintended effects. Economics is not about anyone’s intentions, good or bad, but about “nonintentions”—the beneficial indirect social results of everyone’s self-interested, profit-seeking behavior.

Trickle-Down Economics

The absence of some consciously good intentions in public policy, and in a free market generally, provokes the scornful label “trickle-down economics.” That slogan implies the intention of some government policy to make rich people wealthier so they can patronize the poor.

The contempt implied in the slogan suggests a belief that intentions, good or bad, are a necessary part of any policy, and the absence of consciously good intentions, therefore, means a free market must have bad intentions.

At the same time, those who use the slogan to attack political opponents are themselves less than intellectually honest because the same term could describe any policy to make the poor richer, too. People from every social class spend money on goods and services, which “trickle around” the economy and increase incomes. A simple diagram illustrates the kind of error this single-minded concern with intentions can produce. The rows are good and bad results, intersecting with good intentions or the absence of any conscious motives. Compassion with good results is obviously a virtue, and vice might come from neglecting a problem. But the policymaker who believes intentions are essential for good results is unable even to see the logical case for an indirect system such as the free market.

Ruling Indirectly

Laws and public policy that are based on our knowledge of indirect effects are among the most successful in modern society. Rules such as private property rights and formal ways to draft enforceable contracts are made for people to deal with each other without government’s direct participation.

The good results of those policy rules are strictly indirect consequences. A lawsuit may go to court or the police may be called if people violate the rules, but the government’s role has nothing to do with the good intentions of political leaders. Government really cannot, and should not, care what people do so long as they follow fair and equal rules.

Systematic Malpractice

Should good intentions play any role in government policy at all? No one gives an automobile mechanic credit for good intentions if your car is still not fixed. Generals aren’t praised for good intentions if they lose a battle. If economics and politics were any kind of exact science, there would be no question. Good or bad results are all that anyone would look for.

The failed economics of good intentions is a kind of systematic malpractice in public policy, and it continually recurs. Its advocates fail to understand the repeated failure of their policy ideas, because they have no malevolence. Their pious style of scornfully dismissing as trickle-down economics all reforms that are not based on benevolent social engineering or political planning has prompted economist Thomas Sowell of the Hoover Institution to identify them as “the morally self-anointed.”

But like generals before a battle, elected leaders have a duty to look beyond intentions and focus on producing good results. Public policy has to be based on an understanding of the non-intentions and indirect effects of economic and social behavior.