Politics Trumps Economics

Years ago I was conversing with a hard-core economist, one of the benighted kind who assume that everyone behaves like a wealth-maximizing robot. I observed that even if he were right in his presumption that economic decisions are made rationally and in a way that comports with economic efficiency, government stands in the way of efficiency. In my pithy phrasing: Politics trumps economics.

So even if the impetus for efficiency isn’t blunted by governmental acts (laws, regulations, judicial decrees), those acts nevertheless stand in the way of efficiency, despite clever workarounds. A simple case in point is the minimum wage, which doesn’t merely drive up the wages of some workers, but also ensures that many workers are unemployed in the near term, and that many more workers will be unemployed in the long-term. Yes, the minimum wage causes some employers to substitute capital (e.g., robots) for labor, but they do so only to reduce the bottom-line damage of the minimum wage (at least in the near-term). Neither the employer nor the jobless is made better off by the employer’s machinations. Thus politics (the urge to regulate) trumps economics (the efficiency-maximizing state of affairs that would otherwise obtain).

I was reminded of my exchange with the economist by a passage in Jean-François Revel’s Last Exit to Utopia: The Survival of Socialism in a Post-Soviet Era:

Karl Jaspers, in his essay on Max Weber, records the following conversation between Weber and Joseph Schumpeter:

The two men met at a Vienna cafe… Schumpter indicated how gratified he was by the socialist revolution in Russia. Henceforth socialism would not be just a program on paper — it would have to prove its viability.

To which Weber … replied that Communism at this stage of development in Russia virtually amounted to a crime, and that to take this path would lead to human misery without equal and to a terrible catastrophe.

“That’s exactly what will happen,” agreed Schumpeter, “but what a perfect laboratory experiment.”

“A laboratory in which mountains of corpses will be heaped!” retorted Weber….

This exchange must have occurred at the beginning of the Bolshevik regime, since Max Weber died in 1920. Thus one of the twentieth century’s greatest sociologists and one of its greatest economists were in substantial agreement about Communism: they had no illusions about it and were fully aware of its criminogenic tendencies. On one issue, though, they differed. Schumpeter was still in thrall to a belief that Weber did not share, namely the illusion that the failures and crimes of Communism would serve as a lesson to humanity. [pp. 141-142]

Weber was right, of course. Politics trumps economics because people — especially people in power — will cling to counterproductive beliefs, even despite evidence that they are counterproductive. Facts and logic don’t stand a chance against power-lust, magical thinking, virtue-signalling, and the band-wagon effect.


Related posts:
“Intellectuals and Society”: A Review
The Left’s Agenda
The Left and Its Delusions
A Keynesian Fantasy Land
The Spoiled Children of Capitalism
Politics, Sophistry, and the Academy
Subsidizing the Enemies of Liberty
Income Inequality and Economic Growth
A Case for Redistribution, Not Made
Ruminations on the Left in America
Academic Ignorance
Superiority
Whiners
A Dose of Reality
God-Like Minds
Non-Judgmentalism as Leftist Condescension
An Addendum to (Asymmetrical) Ideological Warfare
The Rahn Curve Revisited
Retrospective Virtue-Signalling
Four Kinds of “Liberals”
Leftist Condescension
The Vast Left-Wing Conspiracy
Leftism As Crypto-Fascism: The Google Paradigm
What’s Going On? A Stealth Revolution

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