Inescapable Economics
Just one quick point apropos of the last to posts on this site, one by me and one by Jim Manzi.
Suppose you started from the following goals:
- As a matter of fairness and equality of opportunity, I want to subsidize college (and graduate school) tuition for those who otherwise could not afford such an education.
- I want to minimize the economic and political distortions associated with my subsidy, and to minimize as well any costs to local and individual experimentation and choice.
Which would you prefer: providing grants to poor students to attend the university of their choice, or establishing a public university with free tuition?
I would assume that most people aiming to achieve the two goals articulated above would opt for the first option. Giving money to students who otherwise couldn’t afford tuition directly achieves goal #1. And it appears to achieve goal #2 because it doesn’t particularly interfere with individual consumer decisions.
But, per the argument of my post, this conclusion has embedded economic assumptions. Specifically, it assumed elastic supply of college spots. If, in an extreme example, there were a fixed number of spots for college, then the entire subsidy to poor students would be captured by incumbent institutions in the form of price increases. This, in turn, would make college unaffordable for a larger set of students, who would require a subsidy, and so on, rising tuition driving ever-higher levels of subsidy.
That doesn’t sound like it meets goal #2 at all. Whereas, in the same circumstances – completely inelastic supply – establishing a new, free tuition public university would have fewer negative collateral effects, either establishing a market where one did not previously exist (perhaps because no private institution could profitably serve this student population) or driving lower costs across the system. Poor students would have more choice, and the existing student population would not suffer.
On the other hand, if supply is completely elastic, the opposite would be true. A subsidy that went directly to students would increase supply without substantial negative externalities, and would preserve choice, while the creation of a public university with free tuition would drive marginal private universities out of business, resulting in reduced consumer choice. This drop in supply would, in turn, drive demand for more slots at the free university, which in turn would drive more private institutions out of business, resulting in ever-greater domination by the single, public provider.
So what should a public policymaker do?
One answer is to say: the public policymaker should not try to subsidize education for indigent students. It is impossible to know with sufficient certainty whether policy A (grants to poor students) or policy B (free tuition at a public university) would be optimal, and either one could have negative side effects that outweigh any benefit. Therefore, we should be epistemically humble, and abandon our goal of equal educational opportunity.
Abandoning goal #1, though, may not be political feasible – or we may simply consider abandoning it to be immoral. In either case, we cannot avoid trying to understand the possible implications of our policy choices, and evaluating them in light of the effects we observe.
My point is: we can’t tell from a description of the policy whether a policy will be “epistemically humble” or not. The policy that looks like the less-distorting one may only look less-distorting because you don’t investigate the economics of the situation. Once investigated, a credible argument may emerge that this policy is, in fact, the more distorting of the two available options. You cannot pick the more “humble” option without knowing the economics. It may appear that you can, but that’s an illusion. And if you’re convinced that the economics are also an illusion, then you simply cannot pick.
Eliminating economic arguments from the conversation because they are insufficiently scientific doesn’t make economics go away. Policies with still have economic effects, effects that may be very different from what folk wisdom would assume. We just won’t have any idea what they will be. That being the case, the epistemically humble thing to do is, in most cases, not to have a policy – that is to say, not to make any decisions that implicate large numbers of people in any way.
But if you have a scope to make policy, then everything – even the policy of doing nothing – is a policy. A policy of issuing currency backed by gold is a monetary policy, one that outsources questions of money supply to the gold mining industry. If you disclaim value to economic argument, you have no way of knowing whether it’s a good policy or a bad policy, but it’s still a policy, as is issuing a currency backed by nothing but a promise to manage the supply of currency “well” without any clear definition of what is meant by “well” (which is the policy of every industrialized country today). The only way not to make policy is to disclaim authority. If you don’t issue currency at all, then you have no monetary policy.
So the only way to avoid making decisions that implicate large numbers of people is not to have authority over large numbers of people – that is to say, not to have large states with the power to tax, spend, issue currency, etc.
Once you accept – or endorse – the existence of large states with significant involvement in the economy, you can’t avoid making policy with economic implications, and therefore you can’t avoid resort to economics as an input to decisionmaking. Epistemic humility, in such circumstances, has to involve some way of evaluating arguments within economics to assess relative levels of certainty, and some way of assigning weight to higher or lower levels of uncertainty within a policy calculus (very high variance in possible outcome might be worth it if the expected outcome is very positive, whereas very low variance might not be worth it if the expected outcome is very negative; this is a question of risk-tolerance).
That’s the way I see it, anyway.
Noah,
I don’t think your analysis is correct. You say, “Once you accept – or endorse – the existence of large states with significant involvement in the economy, you can’t avoid making policy with economic implications, and therefore you can’t avoid resort to economics as an input to decisionmaking.”
I would argue you are only partially correct. Take your example:
“Suppose you started from the following goals:
- As a matter of fairness and equality of opportunity, I want to subsidize college (and graduate school) tuition for those who otherwise could not afford such an education.
- I want to minimize the economic and political distortions associated with my subsidy, and to minimize as well any costs to local and individual experimentation and choice.
Which would you prefer: providing grants to poor students to attend the university of their choice, or establishing a public university with free tuition?”
But why limit the government’s choice to “providing grants to attend the university of their choice” or “establishing a public university” — given Jim’s call for economic epistemic humility why not a third choice — give poor people money, period, full stop. In essence, this is Charles Murray’s idea and it suggests that since Jim is right about all the problems associated with any sort of economic analysis directed at any targeted government program, why not simply help the poor out with cash? They will then figure out what they should do with the money or we could even put certain restrictions on it (e.g. it can only be used for health care, or schooling, or to start a new business, etc.) but since it is kind of silly for the government to want poor people in general to go to college (we should want to help those who have talent, whether they are poor or rich), this seems like a better idea and one that would still meet your goal of helping those who are smart enough for college but don’t have the money to attend.
— Fake Herzog · Jun 2, 09:35 PM · #
It is not “epistemically humble” to do nothing in the face of competing theories. It’s just Manzi and Millman attempting to sell minarchy by loudly proclaiming the difficulty of predicting the future perfectly.
Say I need a place to live. I lack perfect knowledge of how well my chosen home will stand up, what the neighborhood will be like in a decade and how long my commute will be if I change jobs. Do I live in a cardboard box because it’s “epistemically humble” to acknowledge that today’s dreamhome might possibly be tomorrow’s money pit? No. I make my best guesses given what I know and act upon those.
Though every program has its constituency, policies can change based on experience and changing circumstances. There is a tendency among conservatives and libertarians to claim that government can only grow and that regulations and spending decisions now will exist in perpetuity.
Given that middle-aged people can remember when the government set for freight rates, airfares and telephone charges and there were no such things as charter schools or TANF, it’s a pretty silly argument. Government expands and contracts. Paralyzing policy because of “humility” is a choice, just like any other option.
— rj · Jun 3, 04:06 PM · #
First off, I think I come across as a little too strident in that first comment. Still, I think what I wrote is valid in terms of using humility as a cover for certain policy choices.
That being said, I think a good argument can be made for being more accepting of failure. The idea that we’re permanently stuck with a program or policy once we’ve put it into place is both empirically wrong and unduly fatalistic.
There has been a lot of talk recently about the benefits of failure.
For example, check out:
http://www.washingtonpost.com/blogs/ezra-klein/post/the-case-for-government-failure/2011/05/19/AG2cuiCH_blog.html
Maybe we should have the audacity to fail now and then!
— rj · Jun 3, 07:56 PM · #
rj: it sounds like you are agreeing with me. Perhaps I wasn’t as clear as I should have been what point I was making.
— Noah Millman · Jun 3, 09:27 PM · #
We sort of agree. I really shouldn’t have included you in the same breath as Manzi.
— rj · Jun 3, 09:55 PM · #
Funny, I got to the very same thinking last November:
Jim Manzi Makes the Case for Doing Whatever We’re Doing Right Now — Or Nothing
http://www.asymptosis.com/jim-manzi-makes-the-case-for-doing-whatever-were-doing-right-now-or-nothing.html
It’s not wacky for people to think that the “unforeseen consequences” arguments that we hear so much on the right are primarily justifications for maintaining the status quo that serves and has served the dominant players on the right. Incentives matter.
Semi-aside: The epistemic humility argument also lends aid and comfort to the “first 100 people in the New York phone book”/“everything I need to know I learned in kindergarten” school of choosing elected officials, a school that, IMO, represents the most self-defeating aspect of populism. Would any company choose a CEO because he’s fun to drink beer with?
But what I consider unfortunate: those voices don’t realize that (unless they are very rich), the status quo is not actually serving their best interests — or at least their children’s and grandchildren’s.
Probably unintentionally, I see an example of that in the framing of this post.
“As a matter of fairness and equality of opportunity, I want to subsidize college (and graduate school) tuition for those who otherwise could not afford such an education.”
Progressives who think like economists aren’t promoting widespread publicly funded education out of sheer charity and good will; they’re looking at economic research and realizing that it makes us all more prosperous (and broadly prosperous, in a virtuous, self-perpetuating cycle).
If individual liberty is largely a function of individual prosperity, they’re pushing for true libertarianism.
P.S. re the slackwire/Rothstein link: hat tip?
Thanks for listening,
Steve
— Steve Roth · Jun 5, 03:01 PM · #
The epistemic humility argument also lends aid and comfort to the “first 100 people in the New York phone book”/“everything I need to know I learned in kindergarten” school of choosing elected officials, a school that, IMO, represents the most self-defeating aspect of populism. Would any company choose a CEO because he’s fun to drink beer with?
1. It’s 400, not 100. And it’s the Boston phone book, not the NY phone book. And when William F. Buckley made this point, he was not saying this was the best way to pick a government. He was saying it was preferable to having the leftwing oppressor class rule us. You could look it up.
2. To avoid making an argument because it lends “aid and comfort” to people you don’t like or disagree with is dishonest. It’s better to make the best arguments and let the chips fall where they may. (I have on occasion even tried this myself.)
— The Reticulator · Jun 6, 12:04 PM · #