David R. Henderson  

I Flunk Horwitz's Doonesbury Contest

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Attention undergraduates: Here is an opportunity for you to get published. Take a look at today's Doonesbury as it's chock full of bad economics. I would like to have a contest to see which undergraduate can produce the best response to that comic pointing out those fallacies without defending Romney.
Make sure that under no circumstances do you defend Romney!

So announced Steve Horwitz in a post yesterday. So I went to the cartoon, expecting to see a lot of bad economics. "Chock full" is a strong term. And I thought it would be obvious because the contest is open only to undergrads. So an economics professor should be able to find the flaws easily, right?

Here's the problem: I couldn't find a single flaw. Doonesbury's cartoon was good economic reasoning. Trudeau's major point is that a president cares about unemployment and job creation. Unemployment: bad. Job creation: good. A person in the private equity arena cares about making money. Making money: good. Not making money: bad. He doesn't care per se about creating jobs. In fact, he often makes money by destroying jobs. So if Romney makes $100 million, he doesn't care whether he does it by destroying 10,000 jobs or creating 10,000 jobs.

One of the 10 Pillars of Economic Wisdom that I teach the first day of any economics class is Pillar #8: Creating jobs is not the same as creating wealth. Doonesbury's cartoon illustrates that. Notice that the President cares simply about whether jobs were created. He doesn't even ask if they were created because the government hired more DEA agents to hassle peaceful people; he doesn't ask if they were created to tear up sidewalks with ramps for people on wheelchairs and replace them with little bumpy things for people on wheelchairs; he doesn't ask if they were created to produce government-subsidized items that we could have gotten cheaper from China. I think that's accurate.

One example I use in class is Al Gore's or Barack Obama's "green jobs" idea. I give the students the following scenario: You could create 1,000,000 green jobs each paying $50K and produce a total of X value of output. Or you could create 500,000 green jobs each paying $50K and produce the same total X value of output. Pretty much all of them get it. If you choose the second option, you can free up 500,000 people to do something else productive.

Someone in the private sector doesn't say, "Gee, I want to maximize jobs." Instead, he wants to maximize profits. If he can do so by cutting jobs, he will. Now that's good because that frees up people to work elsewhere. Labor is a scarce resource. It's because of people not maximizing jobs that we get as productive an economy as we get. If businesses did what the president does, this economy would be in even worse shape than it is. I bet Trudeau doesn't understand that. But there's no economic error that I can find in the cartoon.

HT to Daniel Kuehn.


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COMMENTS (26 to date)
Ted Barnhart writes:

Exactly,

I know a way to "solve" unemployment, foreign dependency on oil and save the environment all at the same time.

Outlaw cars and trucks, and replace with human drawn carriages and wagons.

Think of all the jobs that would be created.

Daniel Kuehn writes:

Good - Jonathan Catalan was making me feel like I was missing something obvious in my comment section.

The one other thing Steve might be thinking of is that the report that "we have created jobs" or that "we have destroyed jobs" for the private equity firm misses the point that by making companies more efficient, more jobs may very well be created in aggregate because society is wealthier, has money to spend elsewhere, etc. etc. But you can't really fault Doonsebury for that - the context is pretty clearly job creation at the private equity firm so the second order effects economists care about aren't really relevant. If that's the concern, I wouldn't call that "bad economics". John Haltiwanger and lots of others use "job creation" and "job destruction" to mean firm-level increases and decreases in employment.

Daniel Kuehn writes:

I think there is good reason, though, to care about job creation in addition to wealth creation. It's true job creation isn't the same as wealth creation, but it's also very important because for most people labor income is how we partake in the wealth produced by the economy. Unless one thinks that it doesn't matter how widely the wealth is enjoyed, only that it exists (and I don't think this describes many people), job creation matters a great deal.

Maybe one day in the far future when we are all living off the proceeds of the robots we rent out it will be different, but until then I personally like having representatives that care about job creation! That just can't be all they care about.

On that last point about what Trudeau understands or doesn't understand - I think his point is simply that different mindsets are more appropriate to different jobs. I think most of us on the left don't have the aversion to profit-making that we're often assumed to. The point is that that mindset does not always copy-and-paste well to public positions or even to all professions in the private sector. There are other virtues (even within profit maximizing firms), as Deirdre would say.

Ken B writes:

I work in software. When I'm asked what I do for a living and if I am in a mischievious mood, I say "I put people out of work."

Ken B writes:

Daniel Kuehn:

On that last point about what Trudeau understands or doesn't understand - I think his point is simply that different mindsets are more appropriate to different jobs

So this is the first time you've read Doonesbury then?

Daniel Kuehn writes:

Ken B -

No.

Look, it all depends on how wide you want to read this. Of course I've read Doonsebury. I don't get the impression he has it in for capitalism. He doesn't like the mindset of guys that run private equity firms. Most days of the week I don't like that mindset either. It all depends on how broadly you're reading the critique.

But when he compares his panels with the president to his panels with Bain, it's pretty clear he's drawing the distinction between the mindsets at each post. That's my read at least.

Eric Hosemann writes:

I don't think it's nitpicking to take issue with Trudeau comparing "running a country" with running a private equity firm. First off, nobody "runs" the country, however much they or their sycophants wish to believe otherwise. Secondly, whatever decisions Romney et al made while running Bain were disciplined by the fact the Bain's profits and losses accrued to Bain alone and not the taxpayer. The same cannot be said for the decisions made by presidents and lawmakers.

Ken B writes:

Daniel: I don't know if Trudeau has it in for capitalism. He has it in for Romney.

Seth writes:

One problem I have with the strip is the idea the the President runs the country. That's not bad economics, but it's bad something. At most, our President runs the Federal government, and even that role is restricted. Last I checked, the President worked for us, not the other way around, but I know that is very fuzzy for someone like Trudeau.

The second problem is that it seems the strip implies that Romney couldn't run a private equity firm and 'run the country' (or occupy the office of PotUS) and have the very same reactions that Trudeau illustrates in both positions, as if he will respond to the PE incentives while being head politician. That's bad economics, because as we all know, incentives matter.

David R. Henderson writes:

@Seth,
Well done. Now, if that’s where Steve Horwitz wanted the undergrads to go, I would applaud. What’s PE, by the way? Political economy? Still, though, a long way from “chock full."

Carl Jakobsson writes:

The last panel changes everything in the comic. The joke seems pretty bad to me, but the essence is that politicians care about the general welfare, while greedy capitalists don't. Trudeau wants to give the impression that someone who does something anti-social every day (He DESTROYS jobs!) should not be allowed to run a country where one must be social.

From a discordian perspective, Trudeau is furthering the struggle for incomprehension by creating the impression that presidents of corporations and states are as likely to have any effect on a certain area (that most people believe is _their_ area, where they are in major control).

I agree that the comic isn't chockfull with misinformation. I could only find this one I've described.

Seth writes:

@David - Thank you.
PE = private equity

AMW writes:

There's a case to be made that there's bad economics in the strip, and Daniel Kuehn already touched on this.

The strip is comparing job gains or losses at the firm level to job gains or losses at the economy level. Those aren't the same thing. Periods of high unemployment aren't caused by the Bain Capitals of the world getting too greedy and cutting too many jobs to fatten their wallets. They're caused by drops in aggregate demand, real supply shocks, etc.

Yancey Ward writes:

I think Trudeau's strip unintentionally mocks the idea that the president "runs" anything. Seriously, what does the president do in this strip other than express an opinion? And as this is the case, mocking the running of Bain Capital is rather meaningless.

Jim Cardoza writes:

A commonality among those who want government to creates jobs is an intense concern with the redistribution of wealth without the slightest regard as to how wealth is created. That is why their dream of income equity can only be achieved by universal poverty.

John Fast writes:

I'm not an undergraduate, but I do teach economics to undergraduates, and I'm going to use it in class tomorrow, thank you very much.

To me this particular strip is pretty clearly a textbook example of what Bryan Caplan calls "make-work bias." Insofar as this is one of the four main economic fallacies held by irrational voters, I'd say it's a good example of bad economics.

What would be better economics, by the way, would be something like:

"Mr. President! Unemployment is down and the GDP us up!" "That's great!" "Mr. President! Unemployment is down and the GDP is down!" "That's terrible!"

What would be a better analysis of political reality is:

"Mr. President! The GDP is up and unemployment is up!" "That's terrible!"
"Mr. President! Unemployment is down and the GDP is down!" "That's great!"

Daniel Kuehn writes:

Jim Cardoza -
As someone who hangs around a lot of people who talk seriously about redistributive efforts, I can tell you that your assertion is almost never true in my experience. No one immediately comes to mind, at least, that would fit your claim.

Granted, I try to associate with thoughtful people.

Ken B writes:

The strip is a joke right? I mean, Trudeau tries (and always fails) to be funny. And the joke is that what Romney does is bad for the country. The joke is only comprehensible if you accept that creating wealth while eliminating jobs is bad for the country.
That's why what Romney is doing is wagaing class warfare, why he really doesn't understand how to run the country, why he sucks (all from Trudeau's perspective I mean). The joke is: How could you put a man who thinks like that in charge of the country??? Because to Trudeau it is patently obvious that destroying jobs is a bad thing.

Couts Anderson writes:

The cartoon's message is that government cares whether people loose their jobs or keep them but big business (or the private sector) doesn't (as long as money is being made).
I would agree that Obama would be happier if unemployment were to go down, but (unlike Bain) the President's time horizon ends at the next election, whereas Bain's time horizon is longer. The WH would be all for policies that promise short term (quick) results--damn the long term consequences. Whereas Bain, investing private money restructuring a troubled company sees the long-term survival or viability of the company as more important than a few losing their jobs in the short term. This different time horizon is what is unacknowledged or ignored by Trudeau.

Tom E. Snyder writes:

The destruction of jobs has been going on for a long time; it's the price of innovation and is called "creative destruction." At least one recent President has bemoaned ATMs and airport kiosks. Shall we go back to the horse and buggy so the wheelwrights and cartwrights can find work?

guthrie writes:

@Jim Cardoza, I love that last line and may be adopting it myself...

@Daniel Kuehn, thoughtful people might give concessions to wealth creation, there are plenty of folks out here who perfectly fit Jim's assertion. They seem to be, to use Bryan's term, 'ascetics', for whom any wealth is 'immoral' or 'sinful' and must be punished, damn the cost. If yours and your thoughtful friend's ideas could be compared to icebergs, then these folks I refer to slice off the tips of those icebergs, and make them the whole argument.

Of course, neither you nor your acquaintances can control such activity. But such folk are out here, in droves, it would seem.

Daniel Kuehn writes:

guthrie -
Yes, and there are real libertarians out there who really don't care about poor people too.

But I think both these populations are considerably smaller than their opposition tends to think. Keeping up the specter of evil leftists or evil right wingers is good for getting a point across, though.

Greego writes:

When I first read this, I assumed he was showing how easy it is to set up a obviously unfair comparison that would damage Romney's presidential chances - hence the punchline "waging class warfare has never been easier" and the reference to "kids". In other words, I thought it was a dig at the average intelligence of the voting public.

Greg Jaxon writes:

Jobs exist when there is a Wage Fund to sustain them. This fund lives in the so called "social circulating capital" of the economy: i.e. in the credit we grant to the producers and shippers of the goods we will shortly be consuming. They hire workers to finish these goods and bring them to us, then we pay them and the debt is retired. In the meantime, there was money to pay wages.

Used to be that feeding our cities and meeting our other immediate needs was just about the most certain thing you could bet on in the markets (short of the dead certain bet that the total stock of gold wasn't going to change by 0.5% this quarter). Even Bastiat wrote about how "Paris is Fed" even though no one directs this miracle.

But nowadays we have much more certain bets distracting us from funding wages. We can buy Treasuries, which have absolutely no risk whatsoever (until the black swans flock home to roost). In fact, if we're very clever we can guess which Treasuries the Fed will be buying under Operation Twist or Operation Shout, or whatever. Then we buy them and sell them to the Fed quickly and pocket a very nice predictable income. Who needs to do the hard work verifying that people need the next increment of cotton, bandwidth, heating oil, or housing? Guessing that the Fed is going to have to buy more Treasury debt is so much simpler!

To hear people expecting a President to "create jobs" is to witness utter economic illiteracy. Which wouldn't be a problem except when the President and the Fed Chairmen believe it too. Then Stupidity becomes a surer bet than survival and the Wage Fund goes missing but no one knows why unemployment soars.

guthrie writes:

@Daniel, I would suggest that while given small populations, the effect of such groups is disproportionate to their respective sizes. Specters aren’t scary unless they wield some kind of influence or do some kind of damage in the physical realm. Those you term ‘evil leftists’ and ‘evil right wingers’ each hold spheres of influence in their respective parties’ mindsets that exceeds their smallish numbers. So Jim Cardoza’s critique would seem legitimate, unfortunately irrespective of your thoughtful cadre.

What would you say the influence would be of ‘careless libertarians’ over the mindset of the whole?

dullgeek writes:

Dan B said:

I work in software. When I'm asked what I do for a living and if I am in a mischievious mood, I say "I put people out of work."
I work in software, too. And I put it this way, "I put myself out of work. Then I find some other problem and put myself out of work again."

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