Bryan Caplan  

My Policy Trade-Offs Conjecture

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A conjecture that seems true to me:

1. In economic policy, people under-estimate trade-offs.  When contrarians point out the large hidden costs of "feel good" legislation - protectionism, price controls, Medicare, etc. - the public and politicians furrow their brows in skepticism.

2. In foreign policy, people over-estimate trade-offs.  When contrarians point out the large, blatant costs of war - massive loss of life and wealth - the public and politicians credulously invoke just-so stories about the large hidden benefits of bloodbaths.

For example, if someone points out that the minimum wage increases unemployment, most people roll their eyes in disbelief, or attack his intentions.   Where's the absolute proof? 

On the other hand, if someone claims that killing thousands of children in another country protected/will protect our own children from a similar fate, most people take the argument seriously, or nod in hard-headed agreement. 

This double standard would be dangerous even if expert understanding of the hidden costs of economic policy and the hidden benefits of foreign policy were on equal footing.  But the heart of my conjecture is that they're not: Economists know a lot about the hidden costs of populism; foreign policy experts know very little about the hidden benefits of war.

The disemployment effect of the minimum wage might be moderate or large, but it's there.  When people point to the benefits on a war, on the other hand, there's often real uncertainty about whether the benefits are positive or negative.  Will the war frighten our enemies - or provoke them?  Will pre-emptive action remove a rising threat - or inspire a new threat that otherwise wouldn't have existed? 

Example: Almost no one thought World War I would give birth to anything like Communism or Nazism, or that the "war to end wars" would soon pale before World War II.  And who foresaw that the first Iraq War would inspire a wave of anti-American terrorism - which would then inspire a second Iraq War?  In each case, people at the time imagined that they faced clear, stark trade-offs, when the only really clear fact was that they were going to spend a lot of resources in order to kill a lot of people.

I often urge people to take experts more seriously.  So if foreign policy experts insist that a war will have large, hidden benefits, shouldn't I believe them?  My response: Just as philosophers aren't experts on philosophic truth, foreign policy experts aren't experts on the long-run consequences of foreign policy.  They know a lot about countries' military capabilities, treaties, diplomatic exchanges, key personalities, etc.  They also know their limitations.  As a result, they almost never even try to make specific, bet-worthy predictions about the alleged hidden benefits of following their advice. 

Am I wrong?


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COMMENTS (21 to date)
Jayson Virissimo writes:

Bryan, there seems to be a tension in your posts about experts. One the one hand, many lay people would do better by listening to experts. On the other hand, which experts should the lay person listen to? The economist or the sociologist? The philosopher or the historian? Must the lay person be an expert at selecting experts?

Mike writes:

You write:

And who foresaw that the first Iraq War would inspire a wave of anti-American terrorism - which would then inspire a second Iraq War?

How did the first Iraq War inspire a wave of anti-American terrorism? American troops in Saudi Arabia may have provoked Al qaeda, but that is different than the first Iraq War.

Perhaps a better argument is that America believed that fighting World War II in Europe was necessary to protect Europe from becoming controlled by a totalitarian empire. But World War II resulted in that situation nonetheless.

John Thacker writes:
And who foresaw that the first Iraq War would inspire a wave of anti-American terrorism

Do we know that this was the inspiration? Those committing the terrorism usually cited other inspirations, which also included such non-war diplomatic efforts like East Timorese independence.

I certainly don't disagree with the main thrust of your point, but your "foreign policy experts know very little about the hidden benefits of war" should be extended to "foreign policy experts know very little about the hidden benefits or costs of war or other foreign policy actions."

Foobarista writes:

All you're saying is that the future is unknowable. Not exactly profound stuff...

david writes:

For example, if someone points out that the minimum wage increases unemployment, most people roll their eyes in disbelief, or attack his intentions. Where's the absolute proof?

On the other hand, if someone claims that killing thousands of children in another country protected/will protect our own children from a similar fate, most people take the argument seriously, or nod in hard-headed agreement.

Neither of these examples seem true to me. Are you basing these examples on some opinion survey, or just personal experience? This seems a lot like the hostile media effect: everyone disagrees with you, the contrarian!

Eric Falkenstein writes:

Does the West really go to war that often? Compared to what--the degree we institute protectionist policies?

Sonic Charmer writes:

I think Bryan is right. Which just means that people have other criteria (than something like 'objectively measurable goodness-maximization') for selecting preferred policies in those two areas respectively. And those criteria heavily outweigh anything that would be influenced by a careful weighing of trade-offs.

In domestic policy, the people Bryan is talking about value, prominently among other things, signaling how much they care. Trade-offs don't matter to the minimum wage issue if your support for minimum wage is primarily based on a desire to signal caring.

In foreign policy, the people Bryan is talking about value national honor. That is, they want the nation to project strength and defend its honor in international conflicts. The preference for this sort of stance is obviously not based on a detailed, actuarial cost-benefit analysis of doing so.

In both cases there may be a deeper belief that the non-cost-benefit stances being taken will nevertheless pay off in some other, but harder-to-measure, way. The minimum wage advocate may argue (in effect) that it makes the nation 'nicer' in the long term, which has whatever unseen benefits, and will always doubt that someone else's (esp. Bryan Caplan's) calculation of the unseen costs can have fully taken this into account. The war-hawk may argue that a long, deeper consideration of history supports his view that nations that don't protect their honor fall by the wayside (etc), and thus projecting strength helps existentially in ways that are hard to measure but profound.

I think Bryan is absolutely right that these are the things that tend to motivate people to their views, and that they are not hugely influenced by cost-benefit analysis. To me the mystery is that such people feel the need to at least put on a pretense of considering costs. Why does the minimum wage advocate even pretend to have considered the cost at all (rather than just come out and say 'I have other considerations, sorry')? Why doesn't the war advocate just openly state that national honor is one of his values (well, some do) rather than pretending to believe an equation of the form 'if we kill X today it will save Y Americans tomorrow'?

In other words, why does anyone even attempt to humor Bryan at all when he examines them on hidden costs?

david writes:

@Sonic Charmer

Because they do genuinely believe that they have cost-benefit analysis on their side, and that Caplan's own contrarian intuitions are simply wrong?

Robin Hanson writes:

Jayson is right; it is fine for you to disagree with philosophers and foreign policy experts, but to also do that while generically endorsing "experts" requires more detail about when we can or can't trust supposed experts.

hamilton writes:

"Am I wrong?"

In short, yes. You have decided that you are among the experts to listen to, and that experts in fields other than yours, where you disagree with them, nobody need give heed to. Wow, what a shocking coincidence! Everybody should listen to... you!

John Thacker writes:

You can for example note that this Libyan Islamic leader who was an associate of Bin Laden insists that Bin Laden did not expect a US response to the attack on 9/11 beyond shooting a few cruise missiles.

On the other hand, Michael Scheuer, one of those foreign policy experts, insist that Bin Laden did expect and want massive US retaliation.

I don't understand how Bryan can indict "foreign policy experts" as a group, much less how he decides which experts to listen to.

OneEyedMan writes:

"In foreign policy, people over-estimate trade-offs. "
Outside of war, is this a phenomenon? I don't see people overestimating the cost of the trade-offs in embargoes, tariffs, travel restrictions, diplomatic missions, and foreign aid. I'd happily be illuminated, but so far the point really seems that war is terrible yet people seem to look forward to it.

BZ writes:

@One-Eye:
They overestimate the trade-offs, not the COST of the trade-offs. E.G. "Embargoes are war-like, but somehow cause bad governments to roll over", "Tarrifs are taxes, but somehow protect our jobs".

I think you do have a point on diplomacy and foreign aid, though. Diplomacy has no down-side in conventional wisdom, except perhaps as a waste of time in the eyes of conservatives, so no positive trade-offs are needed. Foreign aid is beloved by noone these days, if I read the tea-leaves right, so no positive trade-offs are perceived.

Brian Clendinen writes:

How do you measure Freedom in economic terms? What is the break-even price so there is a somewhat fair justice system? What is the break-even so one can speak freely or live their religion? Bryan you are letting your pacifism get in the way of understanding hidden cost and how much more complicating foreign policy is over economic policy.

What would of the reduced cost of WWII been if the Allies had fought Hitler in 1937 verse 1939? What would of the reduced cost been if the U.S. had sent a division or two in 1918 to support the whites in Russia? What would of been the additional cost been if all of all Korea was living like North Korea? What would of the cost or maybe benefit been if the southern states had won the Civil war? What would of the cost or benfit been if the U.S. had staid in the British empire for another 50 to 80 years?

Would there of been the reduced cost if Bush Senior had occupied Iraq in the first war, if Clinton and Bush Senior had heavily supported Kurd uprising in the 90's instead of back stabbing them? What would of the reduced cost been if we had fought Iran in 1979? What would of the reduce cost been if Britain would of partitioned a sensible Palestinian and Israeli states instead of their arbitrary one?

Some of these you can take a very good educated guess and get a pretty good answer on, other are unanswerable as far as I am concerned.

I could go on and on. We really do not know in many cases until decades after the fact and by looking at what the realistic alternatives might of been if a policy was good, bad, made no diffrence or (as it is most of the time), complicating. Foreign policy is to hard to quantify where economic policies have the medium of money to measure by.

mulp writes:

For example, if someone points out that the minimum wage increases unemployment, most people roll their eyes in disbelief, or attack his intentions. Where's the absolute proof?

On the other hand, if someone claims that killing thousands of children in another country protected/will protect our own children from a similar fate, most people take the argument seriously, or nod in hard-headed agreement.

In the first case, those who argue that the high wages are the cause of the present high unemployment do not step forward to do their patriotic duty by volunteering for a wage cut in the interest of their nation.

In the latter case, millions of Americans volunteer to serve and sacrifice their lives and their family well being even when they do not believe the military action is needed or properly applied.

When those who argue passionately for lower wages to reduce unemployment publicly sign up for wage cuts, then I will believe you are committed to your beliefs.

Maybe the solution is for conservatives to adopt a uniform which they are authorized to wear when they have sworn to follow their oaths of allegiance to wages always following the market, employment contracts being broken by employers, no workplace safety rules, no insurance for anything so bank accounts don't get paid if borrowers default, EMTs ask for cash payment up front if you are bleeding in the street, etc.

Instead, conservatives who avoided service claim Kerry isn't patriotic and McCain who not only defended Kerry but opposed many policies based on his sacrifice and service is deemed by many conservatives to be insufficiently true American, willing to do what it takes to defend American values because he took the position of General Washington circa 1780, and he thinks the nation is the creation of immigrants who took the land from those born here thus requiring a rational discussion of who is or should be considered American.

So, how much of a wage cut have you volunteered for to boost employment?

If none, then you don't believe in your wage price theory, or I must assume you believe you should be exempt from it because of some elite status.

Philo writes:

People have natural dispositions to behave in certain ways; especially when these are socially reinforced they are very hard to suppress, even with *arguments* proving that acting on them produces consequences that are bad on the whole. Protectionism, price controls (minimum wage, etc.) and most other economic regulations, Social Security and Medicare, all result from such dispositions, as does making war. *Arguing* against these practices cannot be other than swimming against the current.

Foobarista writes:

The nice thing about experts is there's so many of them that you can always find one that you agree with.

Tom writes:

"When those who argue passionately for lower wages to reduce unemployment publicly sign up for wage cuts, then I will believe you are committed to your beliefs."

Typical mulp strawman.

I argue for letting the market, through supply and demand, set wages. All your system does is disallow someone whose skills cannot generate a wage over an arbitrary number to participate in the economy. Very arrogant of you. Very typical of you.

ajb writes:

Put my vote down for "Yes."

mattmc writes:

I would put the minimum wage thing down to loss aversion (people overvaluing the magnitude of loss over the magnitude of gain). It also plays into the presumption that employers could conspire to fix wages lower than the market would allow, so the minimum wage serves as a defense against that. The ultilitarian benefits are subsumed by those concerns.

I am so anti-war it is hard for me to find the reason for the support of it. I think nationalism is a big factor, resulting in the lower life value assigned to people that live on the other side of lines on a map. For the USA, there is also a huge investment in the military and some desire to make use of that investment, so as to rationalize the amount spent on it.

Tim Fowler writes:

mattmc - Generally Americans, like most people in probably every other country, do assign lower value to people in other countries (and often lower value to more distant, less related, and/or less similar people in their own country).

But doing so isn't necessary to support military action. War is often argued for based partially on helping the people in the other countries. Freeing them from tyrannical dictators, protecting them from some hostile force etc.

The huge investment in the military issue doesn't play much of a role IMO, except in the sense that it enables war because it gives the capability to prosecute one. People rarely justify war based on this investment in their statements, and I don't think its often an important factor even in their unspoken thoughts. But if you are very powerful, your more likely to see war as a reasonable alternative than if your weak, because the likelihood of loosing or otherwise bearing unacceptable costs is lower.

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