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Gene Callahan is irritated with those of us who complain about all the talk of how hurricane Sandy might well have positive economic benefits – or, at least, how that natural disaster might spark positive movements in conventional economic variables that are used to gauge the vigor of economic activity. Gene writes [2]:
Most economists who write a “There is a silver lining” op-ed are really doing no more than is a preacher who tries to raise the spirits of his flock after a disaster: if we all pull together, we can come out of this even stronger! Really, must those croaking “broken window fallacy” appear, like an army of grim spring peepers after the first thaw, every time an economist tries to be not entirely dismal?
I disagree. Talk matters. Words matter. They matter greatly. (See Deirdre McCloskey [3].) And talk and words have a history that unavoidably imparts meaning to them. The meaning that strikes the ears or eyes and then enters the minds of listeners is determined not merely by what the speaker (or writer) wants to convey – not exclusively by what he or she imagines others will understand – but also by what his or her audience brings to the conversation. Conversation is a two-way street, not a one-way dictation.
Importantly, in the case of scientific writing the meaning that fellow scientists generally ‘get’ from a sentence uttered by a colleague is often quite different from the meaning that non-specialists ‘get’ from the very same sentence. This fact is especially important in the social science and, I believe, especially especially important in economics.
Economics is about the real world – or at least non-economists who hear or read pronouncements from people called “economists” will assume that these economists are making statements about the real-world.
For whatever reason, most non-economists (at least in modern commercial societies) are natural – vulgar – Keynesians. They see spending as the chief driver of economic growth; they regard spending as being the principal, usually sufficient, elixir for restoring health to an ailing economy. The vast majority of non-economists – focusing on the seen, the immediate, the palpable (hey, consult behavioral economics for some evidence of this bias! [4]) – easily overlook that which is unseen, less immediate, less concrete. This reality explains why most non-economists are skeptical of free trade and succumb to all of the other biases so amply documented by Bryan Caplan [5].
One of the signal achievements of economics since the time of Adam Smith has been to expose the flaws of these mercantilist, concrete-bound, man-in-the-street economic notions. This achievement, however, has never been complete, and it’s one that must continually be renewed by new generations of sound economists. But exposing these flaws merely to ourselves – only to other economists – is a paltry achievement with very little social payoff.
So when economists speak to the general public, they are duty-bound to be cognizant of the public’s biases and to communicate in ways that do not reinforce those biases but, instead, have some prospect for correcting those biases.
Peter Morici emphatically does not communicate in such ways. (He’s not alone among economists, but the focus now is on him so I’ll stick with him.) Professor Morici (note his title) consistently tells the general public that trade with foreigners is often economically harmful (chiefly, in his case, because his understanding of trade deficits is as pedestrian as it gets [6]); Morici’s analysis focuses on spending and total demand without sufficient attention to opportunity costs, relative prices, and offsetting adjustments.
Yes, with some effort one can interpret him as making only rather narrow ‘scientific’ points: ‘Of course he doesn’t believe that natural disasters will make people wealthier; he – like many other objective scholars (given over to preaching!) – is simply pointing out that some measures of economic flows, such as GDP, might be increased. But Morici would never want you to mistake his observation that a natural disaster can raise GDP for being a claim that a natural disaster can raise living standards over time! Perish the thought!’ Or this:
‘Of course Morici isn’t saying that a natural disaster, such as hurricane Sandy, will make us wealthier in a real sense. He’s simply pointing out that there will be some not-insignificant economic activity launched in response to the devastation and that the value of that activity must over time be weighed against the very visible destruction before our eyes today. Morici is merely pointing out that the natural disaster won’t make us as poor as we might think.’
I concede that Morici’s most recent essay [7] might bear interpretations such as these. But those of us who interpret him otherwise surely cannot be criticized for seeing in these 2012 words a reflection of these 2011 words [8] (which I believe cannot bear any such generous interpretation). Surely those of us who interpret Morici as falling for and, worse, peddling the broken-window fallacy can be forgiven if we miss his careful sophisticated analysis because we’ve read repeatedly from him the most wrongheaded, mercantilist complaints about trade [9] – mercantilist complaints that are powerful evidence that the person issuing them hasn’t learned some of the most foundational lessons of economics (for example, the importance of tracing out the effects of exchanges fully rather than only partially).
So economists who communicate with the general public in ways that reinforce the general public’s biases are performing a grave disservice. This disservice is not excused by parsing the ‘scientific’ meanings of terms such as “wealth,” “GDP,” “stocks,” and “flows.”
Morici and many other pundits are telling the general public that natural disasters have some fine economic benefits. If all that these pundits are saying is that some measured macroeconomic aggregates (as opposed to living standards) might rise – or saying that some industries and sectors will indeed benefit – or saying that the economy can rebuild so that it will in the future not be as poor as it would be if no rebuilding effort is undertaken – then, at best, they’re offering banalities. The general public, however, doesn’t hear these pronouncements as banalities. Instead, the general public hears people titled as “economists” reinforcing the atavistic biases that swarm in most non-economists’ minds: anything that revs up spending makes the economy better off! And because significant natural disasters will rev up spending significantly, lo and behold we might actually be made economically richer over time by such natural disasters!
….
If Peter Morici and like pundits are preachers seeking to comfort people in harsh times, they are doing so with an utterly flawed, misleading, and destructive creed. That’s a religion that deserves to lose its congregation.
I, however, don’t really think Morici & Co. are preachers seeking to console distressed and anxious flocks. The evidence is overwhelming that they are, instead, simply poor economists who, like the man-in-the-street, fall for the flaws of mercantilism and Keynesianism. And they get the attention that they enjoy in the popular media precisely because their simplistic pronouncements – spiced with just enough apparent paradox to fool uninformed readers into thinking that the writers are saying something profound – sit so comfortably with popular yet mistaken economic notions. The result, therefore, is reinforcement of popular economic ignorance.
If Morici & Co. were in fact sound economists, they would, in response to natural disasters, say only something along the lines of what Steve Horwitz recently posted on his Facebook page [10]:
Disasters, whether natural or social, DESTROY WEALTH AND MAKE US WORSE OFF. Period. End of sentence. There is NO “silver lining.” The economy would be BETTER OFF HAD SANDY NEVER HAPPENED.
That’s it. No natural disaster will make an economy wealthier.