My latest column for AIER is inspired by Sidney Harris’s famous cartoon that depicts, as part of a professor’s impressively elaborate line of reasoning, the fantastical step “Then a miracle occurs….” A slice:
Advocates of industrial policy are among the chief offenders. Seemingly without exception, these advocates assume that the government officials charged with carrying out industrial policy are, when they take office, miraculously transformed into apolitical angels who have access to all the detailed knowledge that must be known for them to replace the market’s allocation of resources.
Other officials who are assumed to work miracles are politicians with the power to implement minimum wages. Economists, ever-clever and recollecting their undergraduate course in labor economics, recall that it’s possible to draw on a whiteboard a pretty picture that reveals conditions under which a minimum wage will raise the wages of low-skilled workers without pushing any of them into the ranks of the unemployed. Mirabile dictu! Actual politicians who impose minimum wages somehow discover these conditions in reality and, with no thought of political advantage to themselves, impose minimum wages that are scientifically and precisely calibrated to these theoretical conditions.
Miracles are also performed by bureaucrats at agencies such as the Food and Drug Administration and the Federal Reserve. Never so venal as to concern themselves with the sizes of their budgets, or with their future employment prospects, these officials are concerned always and only with improving the well-being of their fellow citizens. FDA scientists, to perform their duties as advertised, need to know the different risk-preferences of hundreds of millions of Americans in order to decide which pharmaceuticals and medical devices are sufficiently “safe and effective.” How do they come to possess such knowledge? Why, by some miracle!
Fed savants, to perform their duties as advertised, must have knowledge of just how and when to manipulate the supply of money so that maximum economic growth is fueled. Many of these savants insist that while ‘optimal’ supplies of the likes of machine tools, mangoes, steel, and stilettos can only be discovered through the competitive market process, the ‘optimal’ quantity of money must be divined by them as they confabulate in a majestic office building. Such divination is miraculous!
Miracles are also assumed to be at work whenever economists advise governments on how to protect the environment. The same clever economist who is enchanted with diagrams showing optimal minimum wages is similarly enthralled by the ability of carbon taxes to reduce carbon emissions. This economist is indeed correct that higher taxes on emissions of carbon result in reduced carbon emissions. This outcome is the stuff of ECON 101; it requires no miracle. The miracle occurs when the economist concludes that government officials can know in practice, with sufficient certainty, that carbon emissions ‘should’ be reduced and by how much. (Another, more-minor miracle is assumed to occur when the economist divines the exact impact on carbon emissions of proposed higher taxes on such emissions. But I’ll here ignore this minor miracle.)