What is the art of economics, and why aren’t good intentions good enough? Jay Richards addressed this question at the Intersect Wisdom Forum. Here’s a transcript of his talk:
My job is to persuade you of one thing, but it’s one thing that none of us actually wants to believe. I want to persuade you that good intentions are not good enough.
What do I mean by that? As Christians, we know that God cares about our intentions. But we ought to know, and we ought to understand, that God cares what we do as well.
In the moral life, the internal matters. But in our economic and public life, especially when we’re thinking about things like economics and public policy, it’s the external that matters. This is such an important point.
There was a great thinker named Henry Hazlitt in the 1950s [who] wrote a book called Economics in One Lesson. In that book…. he talked about what he called “the art of economics.” The art of economics, he said, consists of tracing the consequences of a policy not merely to one group, but for all groups. [We think] through not just what we intend to do, but what actually happens. That’s the key.
You’re thinking, “As Christians, why would we want to learn the art of economics? Are you saying that we need to take macroeconomics and econometrics?” No. Note that Hazlitt is talking about the art of economics, not the science. The art is different from the science. There are rules and principles, of course, we have to develop. But an art is something we have to get down in our bones, get down in our marrow, so that it’s something we’re accustomed to and we do automatically. That’s the art of economics.
Now if we can master that — I would maintain, if we could just learn the intellectual disciplines of the art of economics — we can learn how to help rather than unintentionally harming people, both in our public lives, in our missions, in our development work, and in the economic policies and political policies that we actually advocate.
There’s also a biblical point here. Hazlitt is the economist. The biblical point is one I already alluded to, and it’s that there’s a difference between our moral lives and our economic lives. In our moral lives, God cares both what we do and why we do it. That’s one of the points of the story of the widow’s mite. You’ll remember that Jesus and his disciples are in the temple, and they’re watching people with gaudy displays of their wealth and generosity. And he sees the widow give a mere mite (think of it like a penny), and Jesus praised her. He didn’t praise her because of the economic significance of her gift; he praised her because she gave out of her poverty. He praised her because of the love that she had and a willingness to sacrifice.
That’s the point in the moral life. God cares when you act. You can do something that can actually help someone. But if you do it out of greed, if you do it out of pride, you won’t have done it for the right reason and it will turn what would have otherwise been a moral act into an immoral one. That’s true in the moral life.
It’s not true in the economic life. In economic policies, if members of congress vote on a bill, 535 members of the House and the Senate unanimously support a bill and the President signs it, that policy is going to have the same effect even if there were 535 different motivations for supporting the bill. If you can understand and remember that point, you will have mastered the art of economics.
Unfortunately, a really simple idea — to understand and think through the unintended consequences of actions, is something that is very difficult to practice. It’s easy to get, and it’s very easy to forget. So many of the things we do as a country, the war on poverty, the things we do collectively, the things we do as Christians, unfortunately, very often are motivated well (they have good intentions). But they actually do counterintuitive and counterproductive things to people.
Thinking through the unintended consequences of our actions is difficult to practice.Click to tweet
Let me give you just a couple of examples. I could drone on about this all night, and trust me: it would be very depressing. But I just want to give you a couple of mental hooks to remember this lesson about intentions.
The first is something that’s not probably common in places like Wake Forest, North Carolina. But in large cities, especially in the 1970s and 1980s, actually implemented a policy called “rent control.” Now rent control sets a legal limit on how much landlords can charge for their properties. So you’ve got a one-bedroom apartment or a two-bedroom apartment, the city tells you that it’s illegal to charge above a certain amount. That’s rent control.
Now why would city councils want something like this? Inevitably the reason these policies are implemented is because city councils look around (if you’re in a large city like London or Manhattan or San Francisco) [and] discover that the price of housing is going through the roof. There’s a lot of demand; there’s not a lot of space; supply and demand are related in a certain way so prices go up. The city council looks around and says, “Rental housing is not going to be affordable for our people.” So the thought is, “Okay, we’ll just make it illegal for landlords to charge above a certain amount. And then we’ll keep housing affordable.”
What’s the motivation? To keep housing affordable for lower income people. What’s the effect, do you think, of rent control whenever it’s tried in this kind of context? It is to create a shortage in the very housing that was intended to be protected. All you have to do is think about it from the perspective of a landlord. Let’s say you have a ten-room apartment complex with ten one-bedroom apartments, and it costs you $1000 per month to maintain it. The city tells you that you can only charge $500 per month in rent. What are you going to do, unless you like self-torture or going bankrupt? You’re going to do one of three things. You’ll either convert the residential property to commercial property so it becomes a store. You’ll convert it into a condominium and sell it, so it’s no longer rent property. Or you’ll quit maintaining it so you don’t lose money, and it eventually becomes a slum. You become a slumlord.
In every case, the lack of attention to the unintended consequences of a policy not only has weird, counterintuitive consequences. [The policy] ends up doing exactly the opposite of what it was supposed to do. If you remember just that one thing, you’ll actually get the point. If you fail to attend to the actual consequences of a policy, you can end up doing exactly the opposite of what you meant to do.
Endangered Species Act
One more example. The Endangered Species Act was a bipartisan act passed in the United States in 1973. It was signed by President Richard Nixon. At the time, it put about 1,200 animals and plants that were considered endangered on the list. Essentially… scientists surveyed different populations of plants and animals and determined whether certain plants or animals were at risk, or were endangered, or were very endangered, and set up certain laws to try to protect them. The purpose of the act, obviously, was not to make species endangered. It was to protect endangered species. I have no doubt that was the motivation of all the people who supported and voted for the act.
But if you learn the art of economics, you learn that there’s more to it than that. You know that especially with a federal policy, there are all sorts of opportunities for weird, counterintuitive consequences. Weird things that you might not thought would have happened. And in this very large act, as it turns out, there is one very large provision (called the Takings Provision) that has ended up more or less reversing or perverting the laudable goals of the endangered species act.
Now what the Takings Provision says is this: Let’s say you are a farmer or a land-owner and you discover an endangered species habitat on your farm. If you report it, the takings provision allows a federal agency to essentially take that portion of your land. Not literally, but they essentially prohibit you from using that portion of your land because it’s a habitat for endangered species. That’s the Takings Provision.
Now I want you to think about the potential unintended consequences of this policy. Imagine, for instance, that you are a farmer who lives by the sweat of your brow on the land that you farm. You are in western Pennsylvania, and you discover wild lupine growing in certain portions of your farm that you allow to go fallow every few years…. You look it up and find out that it is the unique dietary preference of an endangered species called the Blue Karner Butterfly. It’s not like a pigeon, rat or deer that eats whatever humans leave out. [These butterflies] are very specific; they’ll eat only this wild lupine.
You’re a smart guy, a successful farmer. And you read a little bit about it. And it turns out that if you call the federal agency and tell them that you’ve discovered this food for this endangered species, they’re going to prevent you from farming the land.
So what do you think you’re going to do? You might actually want to help the butterfly. You might actually like them and noticed them eating wild lupine on your farm. But notice there’s a disincentive for you to call. Why is that? As a farmer, your interests are now at odds with the interests of the Blue Karner Butterfly. They’re exactly at odds.
In fact, this policy hasn’t just happened with these beautiful butterflies; it’s happened with dozens of species. As a result, of the original 1,200 about 15 species have been removed from the list…. That tells you there’s something that’s probably wrong.
But in fact there’s a policy that’s colloquially described as “shoot, shovel, and shut-up.” Now in this case, we’re not talking about animals. We’re not talking about butterflies. We’re talking about the lupine. Because as a farmer, it’s in your interest to make sure that you do not have an endangered species habitat on your land. So, rather than call the authorities, you’re very likely to make sure it’s just not an endangered species habitat….
Now no one thought, “Let’s have farmers destroy endangered species habitats. What can we do to cause that?” No one intended that. But that, over and over again, has been the effect of the policy. What’s depressing is that if members of congress, bureaucrats, agencie, and voters like ourselves mastered the art of economics, it could actually prevent these kinds of things. I’m convinced that if we could learn that intellectual discipline, we could prevent it.
In fact, I’ll simplify the art of economics for you in terms of a single trillion-dollar question. (I’ll leave it as homework to guess why I call this the trillion-dollar question.) Remember the art of economics consists of tracing the consequences of a policy not merely for one group but for all groups. The trillion-dollar question is just this: And then what will happen?
So if someone says, “Let’s implement federal rent control all around the country.” You say, “That sounds nice. And then what will happen?”
“Let’s raise the federal minimum wage to $200 per hour then everyone will be rich, because we want people not to be poor.” “And then what will happen?”
That’s the trillion-dollar question. And if we just learn to exercise that discipline, rather than practicing random acts of kindness, we can promote effective solutions that are not only well motivated, but that actually help our fellow human beings. That is why good intentions are not good enough.
This post is a transcript of Jay Richards’ talk at the Intersect Wisdom Forum.