The Spectrum Fallacy

Why all of something good isn’t better than just some of it

The economic rise of China since the 1980s has been one of the most, if not the most, impressive feats of economic progress ever. It has eradicated poverty by the hundreds of millions, created an industrial sector that has dwarfed anything ever seen in human history, and despite the country’s size and maturity, continues to grow at a pace that any Western democracy and even most developing economies can only dream of. This has been largely been achieved by the Chinese government’s adoption of market policies. China is now the world’s greatest trading nation and also a massive receptor and supplier of foreign investment. Capitalism works, and it follows that China is the perfect example of why countries should liberalize their economies and embrace free markets unconditionally.

Except it doesn’t follow.

If you were tempted to draw this apparently obvious conclusion, congratulations, you are a victim of what I like to call the Spectrum Fallacy, possibly the most pernicious flaw of logical argumentation in policy circles. What is the Spectrum Fallacy? It is the flawed premise that just because something is demonstrably better than something else, more of that something is necessarily better than only some of it. It is very similar to a well known logical fallacy, the false dilemma. Like the false dilemma, the spectrum fallacy assumes that there is a false choice, that one must necessarily choose between two mutually exclusive options (statist communism or laissez-faire capitalism). However, here we are assuming not that there are more choices but that either of these two choices can be better when they are applied less extremely across the spectrum of possibilities. Continue reading

Fellow economists, we’re mostly to blame for this mess

Brexit, Trump. We built the world that let extremism thrive
This is on us

This is on us

Dear world, on behalf of economists I offer an apology. More than anything or anyone else, we are responsible for the clusterfuck that has been 2016.

Since the 1980s we said that inequality didn’t matter. That working and middle class people would be fine if their incomes didn’t worsen even as those in the top 10% (and especially 1%) saw their own income and wealth skyrocket to levels not seen since the Gilded Age. We did not see that people did not view their lot in absolute but in relative terms. We expected them to accept our logic, and acted dumbfounded when they didn’t express gratitude for the few tiny drops of prosperity that trickled down. We never imagined that they’d be rightfully pissed. Then we blamed them for living beyond their means to catch up with the Joneses, for being irresponsible for maxing their credit cards and taking out mortgages on houses they couldn’t afford. We never saw inequality as a psychological problem as much as an economic one.

We called anyone who disagreed a socialist.

Around that same time, we said that free markets were a panacea for growth. True, many countries did benefit heavily from globalization and certainly those countries that did not follow certain basic rules of market logic have fared terribly (Venezuela being a case in point). But globalization was not a panacea for the working and middle classes of the developed world. In our smugness, we said that the lost jobs either to China, Mexico, or technology were a necessary evil for continued productivity growth. We acted like it was their fault that they did not have the skills needed for the new economy, and that it was nobody’s responsibility to find them those skills either. In the dog eat dog world of neoliberal economics there are losers, and we could afford not to be those losers becomes economists are still not being outsourced to India or replaced by robots so we had little empathy for those who were less lucky. We applauded that unemployment fell and didn’t care that it was because people lost stable, salaried jobs and became self-employed with zero benefits. We cared more about the Dow Jones than the Gini index.

We called anyone who disagreed a socialist.

We also assumed that everyone was rational. We even had a name for this species of humanity that always took decisions based on all available information, weighed all options, and picked the one that maximized their utility: homo economicus. Since we thought psychology, sociology, and all the other social sciences were inferior disciplines because they could not prove their hypotheses with econometrics, so we never bothered to accept their insights into human behavior. The result is that we thought markets were self-correcting, industries were self-regulated, and markets punished those who took decisions against the public interest. We saw the “irrational exuberance” of the dot-com bubble and then did nothing when a bigger bubble, the subprime housing bubble, sprung up almost immediately after the first one popped.

We called anyone who disagreed a socialist.

And finally, we assumed we had all the answers. We took the view of Noble laureate Robert Lucas that the “central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades”. This was just five years before the global financial crisis. We also poisoned the minds of politicians, who adopted our elegant yet simplistic neoclassical view of how the world worked. We flooded bookstores with titles like Freakonomics and The Economic Naturalist: How Economics Explains Everything to educate the masses on why we knew better. We were conceited, arrogant, and frankly, fucking annoying.

We called anyone who disagreed a socialist.

Then on June 23rd we wondered how the British could be so stupid as to want to leave the EU. On November 8th we were even more perplexed on how Americans could be dumb enough to vote for someone like Trump. From our little intellectual ivory towers, the framework in which we understood the world was perfectly fine. We didn’t get that we didn’t get it.

And now with the twin shocks of a global crisis in 2008-09 and a political crisis in 2016, our world has been shattered. Probably irremediably. But we don’t know it yet. This will still be blamed on people (deplorable as they may be), rather than the structures that conditioned them to be that way. And we’ll be scratching our heads into oblivion by failing to understand why a laid off steelworker from Pennsylvania or miner from Yorkshire won’t be voting with rapturous joy for the man or woman who promises free trade agreements, minority rights, and open immigration in place of the only thing that really matters to them: dignity.

(The author wishes to note that he has stood against everything that has been criticized in this piece since his days as an undergrad. And if you think he is a socialist, well, you’re pretty much the type of person he wrote this for)