Economic Theory

Fear and economic fallacies


Nearly every popular economic fallacy reflects fear of the future. Although unjustified, such fear is understandable. We’re familiar with, and have more or less adjusted to, what exists. But we don’t know the future, so it frightens us.

Consider, for example, international trade. When British people buy more imports, a typical and immediate effect is destruction of some existing UK jobs. Likewise for new labour-saving techniques. In both cases, economic theory and history make clear that new and better jobs are eventually created and living standards improve.

Economics and history also make clear that to prevent such trade- and technology-induced job churn is to stifle economic growth. The more unrelenting and widespread are policies that prevent this job churn, the more surely almost everyone is condemned to a future of poverty. (If you doubt me, consider that in 1860, about half of all jobs were in agriculture. Now ask how prosperous we would be today if our government back then had successfully protected agricultural jobs from being destroyed by then-emerging technologies such as long-distance rail transport, refrigeration and chemical fertilization.)

People who demand economic growth while decrying economic change and its disruptions are deeply inconsistent.

Fear of the future also explains much support for battling recessions with increased government spending – preferably via larger budget deficits. Letting recessions run their course, so unprofitable investments are liquidated and those resources are redeployed to more-productive uses, is not popular. Surely one reason – in addition to mere impatience – is that no one amid any recession can say for certain just what those new and better productive uses are.

Yet another government policy fueled, at least in part, by fear of the future is economic regulation. We demand, for instance, that the European Medicines Agency (EMA) peer into the future of all new pharmaceutical products and medical devices before we can purchase them. We want the EMA to permit us to buy only products that it determines are sufficiently safe and effective.

Yet, in fact, no pharmaceutical product – indeed, no product of any sort – is perfectly safe. Demand for a future free of risks of medical treatments’ severe downsides is not only foolish, it’s fruitless. The only way to assure no such unhappy surprises is to prohibit any and all medical advances. But, obviously, such a draconian prohibition would mean worse, not better, medical care. We’d be stuck with older, less advanced drugs and devices. And while the consequences of using these older products are more familiar than the consequences of using new products, those familiar consequences would also, on the whole, be worse.

The European Union’s seizure of the role of deciding for 325 million Europeans whether a pharmaceutical product is acceptable is justified as an attempt to protect us from a dreadful future. But because the EMA discourages the development of new drugs and devices, it actually fills our future with more pain and unnecessary death.

 

This article was published in EA Magazine.


3 thoughts on “Fear and economic fallacies”

  1. Posted 13/05/2018 at 09:40 | Permalink

    There is a fear that it is worthless to try to understand how our social system works (macroeconomics) because it is too complicated. Politicians tend to follow the leaders and individuals in other technical jobs think they are better employed when they don’t waste time on sociological matters of this kind.

    I wish to explain that these attitude-takers are badly mistaken in what they assume to be true, and that the science of macroeconomics has now been expressed in both a simple (i.e. much simpler than before) and logical way that is not hard to understand, thereby changing this vital subject from a intuitive or pseudo-science into a true one. What was previously thought to be a vague and inexact complicate situation now has become an almost exact science and one that is much better able to explain our social system that the pseudo-science of macroeconomics being taught at universities today.

    My research on this matter has resulted in the need to begin to express this matter again, from the beginning, in terms of the various functions that we commonly share rather than how we differently behave. This work easily shows that there are no more than 19 kinds of these functions or activities being performed by only 6 agencies or entities, all of which we share. (Please see my short paper SSRN 2865571 “Einstein’s Criterion Applied to Logical Macroeconomics Modeling”.) This reduction in different varieties of our behavior comes with the ability to take aggregate kinds of functions from human activity within the whole of society when viewed from a sufficiently distant perspective to encompass it all.

    Use of the model that results from this, is able to explain in simple terms how our social system is connected and how it works. It can be applied to forecasting the effect of introducing a sudden changes or of an external upset, to what was taken as an initially balanced situation. There is a mechanical equivalent (see SSRN 2600103 “A Mechanical Model for Teaching Macroeconomics” ) and my research has resulted in a 310 page book which is free when you write to me for a e-copy ([email protected]).

  2. Posted 15/05/2018 at 18:56 | Permalink

    David Harold Chester,
    I thoroughly enjoyed Don Boudreaux’s article, Fear and Economic Fallacies,’ and and your related comments.
    I would very much appreciate the opportunity to read your book. Thank you so much for your generous offer.

  3. Posted 21/05/2018 at 05:19 | Permalink

    I agree that history has shown that restricting international trade usually has more consequences than benefits. As Mr. Boudreaux has said, some U.K. jobs will be destroyed as a result of U.K. citizens buying imports. Preventing countries from trading with each other on an international scale only does more harm than good. For example, Britain was following the economic policy of protectionism during the 16th-18th century and formed the British Empire. Most economists today consider the British Empire a net drain on the domestic economy. Even when the British Empire shifted to more liberalized trade in the 19th century, there were still net losses on the economy. Some people also make the infant industry argument where protectionism such as tariffs is supported. This would allow smaller countries to reach similar economies of scale. Free trade does not necessarily benefit everyone and there are both winners and losers. However, I think the positives of free trade heavily outweigh the benefits.

    In regards to the European Medicines Agency (EMA) making sure that all pharmaceutical products are safe, I also think that is not possible. Many medicines have a degree of risk which is why there are often warning labels detailing the possible side effects. The positive benefits of a pharmaceutical product are needed even though there is a degree of risk. Prohibiting manufacturers from releasing a product unless it is one hundred percent safe would only disincentivize anyone from making helpful drugs.

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