New Year, Old Thoughts

Great Minds on Economics, Healthcare, Politics, Innovation, and Life

A new year is upon us, and I enjoy relaxing after the holidays as much as the next person. So, here, I’ll let a couple dozen thinkers on economics, healthcare, politics, innovation, and life do half my work for me. 

Friedrich von Hayek offered the most succinct argument for humility among economists and politicians, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

While far more disposed toward harnessing the power of a centralized state (informed by economists), John Maynard Keynes offered his own plea for humility in the introduction to D. H. Robertson’s book Money, "The Theory of Economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor to draw correct conclusions."

Keynes’s elder colleague, Alfred Marshall, expressed his own caution regarding those presenting isolated facts as if they themselves proved larger truths, “Facts by themselves are silent."

Today, pundits and credulous journalists clog the airwaves and internet with pronouncements that defy the caution expressed by Hayek, Keynes, and Marshall. My colleague Don Boudreaux put it this way, “Trying to learn economics from the popular media is like trying to learn physics by watching Road Runner cartoons.”

Reinforcing this notion that economics contains few, if any, immutable, self-evident truths, it is often said, perhaps apocryphally, that John Maynard Keynes, responding to an accusation of inconsistency, is reputed to have responded by saying, "When the facts change, I change my mind. What do you do, sir?"

The ur-quote of economics is the observation by Adam Smith that markets harness the self-interest of one person to produce benefits for others as by-products, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

Steven Landsburg borrowed Rabbi Hillel’s proto-Golden Rule in a way that reinforces Smith’s observation, "Most of economics can be summarized in four words: 'People respond to incentives.' The rest is commentary. . . 'People respond to incentives' sounds innocuous enough, and almost everyone will admit its validity as a general principle. What distinguishes the economist is his insistence on taking the principle seriously at all times.”

CEO Tim Cook, takes a sort-of butcher/brewer/baker view of Apple Computer’s endless output of beloved products, “Our whole role in life is to give you something you didn’t know you wanted. And then once you get it, you can’t imagine your life without it.”

However, Adam Smith also warned of the downside of self-interested behavior in the absence of appropriate incentives, “It is the interest of every man to live as much at his ease as he can; and if his emoluments are to be precisely the same, whether he does or does not perform some very laborious duty, it is certainly his interest, at least as interest is vulgarly understood, either to neglect it altogether, or, if he is subject to some authority which will not suffer him to do this, to perform it in as careless and slovenly a manner as that authority will permit.”

Smith’s description of what modern economists call the “principal-agent problem” was echoed in an epigrammatic quotation often attributed to Milton Friedman, “Nobody spends someone else’s money as carefully as they spend their own.”

This carefree attitude toward other people’s money leads to what Lord Peter Bauer said about foreign aid, “[It is] an excellent method for transferring money from poor people in rich countries to rich people in poor countries.”

Kevin Williamson also wrote about political self-interest with other people’s money, “Politics is politics and investment is investment and that’s that. When a politician claims to be ‘investing,’ he is engaged in politics. And when businesses partner up with politicians? That’s not politics—that’s an investment.”

Turning to my field, healthcare, we remind ourselves that self-interest and altruism often exist side-by-side, sometimes conflicting and sometimes working in tandem. Lewis Thomas wrote, “The dilemma of modern medicine, and the underlying central flaw in medical education . . .  is this irresistible drive to do something, anything. It is expected by patients and too often agreed to by doctors, in the face of ignorance.”

Florence Nightingale noted in her 19th century Notes on Nursing: What It Is, and What It Is Not that the often-futile compulsion to do good is not limited to doctors, “To patients enduring every day for years from every friend or acquaintance, either by letter or viva voce, some torment of this kind, I would suggest the same answer. It would indeed be spared, if such friends and acquaintances would but consider for one moment, that it is probable the patient has heard such advice at least fifty times before, and that, had it been practicable, it would have been practised long ago.”

Somebody once cast a cynical eye at the do-something compulsion, “The art of medicine consists of amusing the patient while nature cures the disease.” (Many attribute this quote to Voltaire, but I can’t find evidence that he really said it.)

Centuries later, this was put a tad more whimsically by comedian Henny Youngman, "The patient said to the doctor, 'It hurts when I do this.' The doctor said, 'Then don't do that.'"

Eric Hoffer took a colder view of unbridled altruism, "A man is likely to mind his own business when it is worth minding. When it is not, he takes his mind off his own meaningless affairs by minding other people’s business.”

This tendency extends to those who would perfect language and seal it in amber. Steven Pinker quoted H. L. Mencken who quoted the New York Sun in describing the futility of command-driven language, “The excellent tribe of grammarians, the precisians who strive to be correct and correctors, have as much power to prohibit a single word or phrase as a gray squirrel has to put out Orion with a flicker of his tail.”

Peter Ubel observed that a few decades back, the compulsion described by Thomas and Nightingale (and maybe Voltaire) became a financial issue as never before, "The explosion of medical technology in the late 20th century has forced physicians to think seriously about cost containment. When my father first practiced medicine in the 1950s, his pharmaceutical armamentarium included a handful of antibiotics and 2 or 3 antihypertensives. The most expensive diagnostic tests were plain film radiographs. It was easier to give patients the best healthcare money could buy, because there was not as much healthcare to buy."

Politicians have widely assumed that healthcare costs could be reined in by reconfiguring insurance systems: Echoing Hayek’s “curious task,” P. J. O’Rourke cautioned in a 1993 speech that, "If you think healthcare is expensive now, wait until you see what it costs when it's free."

A major reason why politicians embark on well-intentioned, but futile, policies lies in the difficulty of perceiving secondary effects and unintended consequences. Henry Hazlitt wrote, "The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups."

Perhaps most importantly, grand schemes to rectify society-wide ills often fail because planners are poor prophets, and their self-interests (nourished with other people’s money) lead them into operation cul-de-sacs:  Virginia Postrel wrote, “Technocracy . . . is centralized and inflexible. It asks people with new ideas to justify them to boards and commissions. It establishes rules, from broadcasting regulations to laws against working at home, that assume neither technologies nor tastes will change. It allocates tax breaks, subsidies, and licenses to established lobbies. It rewards the articulate and the politically savvy, punishing those who lack smoothness, connections, or the time, patience, and legal counsel to endure endless meetings.”

Of course, democratic governments don’t operate in isolation. Their power is conferred by voters, who are ultimately responsible for both beneficial and injurious governance: Eric Hoffer wrote of mass movements, “For men to plunge headlong into an undertaking of vast change, they must be intensely discontented yet not destitute, and they must have the feeling that by the possession of some potent doctrine, infallible leader or some new technique they have access to a source of irresistible power. They must also have an extravagant conception of the prospects and the potentialities of the future. Finally, they must be wholly ignorant of the difficulties involved in their vast undertaking. Experience is a handicap.”

Unfortunately, the not-altogether incorrect perception of ignorance among voters and activists can persuade governments to reinforce said ignorance: Fin-de-siècle US Commissioner of Education William Torrey Harris reportedly said, “Our schools have been scientifically designed to prevent over-education from happening. ... The average American (should be) content with their humble role in life, because they're not tempted to think about any other role.”

In the film, “Matilda,” (based on Roald Dahl’s book) Harry Wormwood (Danny Devito) offers his daughter a blunter variation on the same theme, “Listen you little wiseacre: I’m smart, you’re dumb; I’m big, you’re little; I’m right, you’re wrong; and there’s nothing you can do about it.”

Without issuing falsehoods, the political system can play to this tendency by skewing the available evidence. Speaking to a young colleague, Winston Churchill told him, “I gather, young man, that you wish to be a Member of Parliament. The first lesson that you must learn is, when I call for statistics about the rate of infant mortality, what I want is proof that fewer babies died when I was Prime Minister than when anyone else was Prime Minister. That is a political statistic.”

The coarser possibilities of determined populism were described lyrically by Edmund Burke, “Because half-a-dozen grasshoppers under a fern make the field ring with their importunate chink, whilst thousands of great cattle, reposed beneath the shadow of the British oak, chew the cud and are silent, pray do not imagine that those who make the noise are the only inhabitants of the field; that of course they are many in number; or that, after all, they are other than the little shrivelled, meagre, hopping, though loud and troublesome insects of the hour.”

Over the past two centuries, standards of living worldwide, and especially in the United States, have reached previously unimaginable heights. And yet, the technological innovations made these riches possible are always held suspect by large swaths of the population. Matt Ridley has said Michael Crichton once told him, “‘People don’t like change, and the notion that technology is exciting is true for only a handful of people. The rest are depressed or annoyed by the changes.”

Robert Heinlein (in a short story titled “Notebooks of Lazarus Long”), described the effects of this distrust and the cyclical nature of self-impoverishment, “Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded—here and there, now and then—are the work of an extremely small minority, frequently despised, often condemned, and always opposed by all the right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people slip back into abject poverty. This is known as ‘bad luck.’”

Matt Ridley noted the fleeting nature of innovation, which can dissipate autonomously or at the hands of the political system, “Innovation is like a bush fire that burns brightly for a short time, then dies down before flaring up somewhere else.”

My colleague Adam Thierer notes often that we deprive ourselves of still higher standards of living by descending into innovation-crushing risk-aversion, “Trying to preemptively plan for every hypothetical worst-case scenario means the best-case scenarios will never come about.”

And yet, as Crichton noted, we reject the light and hurl ourselves back into darkness again and again. Kevin Williamson says of our tendency to endlessly repeat foolish economic policies, “How many times do we need to watch Casablanca before we figure out that Ilsa is going to get on the plane every single time?”

In a phrase attributed to Mark Twain, “History doesn’t repeat itself. But it rhymes.”