The World As I See It

Economic conditions and policies affect everyone. I wonder why not everyone takes economics in their studies. And since most of us do not study economics, why are there so many who are so ready to comment on the economic affairs and criticise the policies? Don’t they have a single bit of worrisome that their rants turn out to be untrue and superficial, that in the process they reveal merely a deficiency of understanding? Perhaps the usual large camp of vociferous peers at their side helps assuage this insecurity.

The only answer one could surmise is most people see economics as a simple discipline. Even a postdoctoral study in it would bring us where common sense would lead us to. But the truth is "economics is a difficult and technical subject but nobody will believe it", quoted from J.M. Keynes. We can imagine how thankless the job and how hard the position is for a well-informed and well-intentioned government. For any unfavourable announcement, the public almost always does not want to listen and does not believe in the government’s explanations, but wants to make noises that are non sequitur (to an expert). Paul Krugman, for long in his writings, has been attempting "to explode some plausible-sounding idea that happens to be false or to promote some implausible, disturbing idea that happens to be true", and in the end has managed to make enemies. I remember reading about the uproar he ignited by answering "none" to a question about North American Free Trade Agreement’s effect on the US employment.

My point is, economic conclusions can be counter-intuitive. The most commonly cited would be Ricardo’s Comparative Advantage. On this, Krugman wrote a long essay explaining why many smart people don’t understand it and are not ashamed of their failure.

"Like any scientific concept it is actually part of a dense web of linked ideas. A trained economist looks at the simple Ricardian model and sees a story that can be told in a few minutes; but in fact to tell that story so quickly one must presume that one’s audience understands a number of other stories… and you continually find yourself obliged to backtrack, realizing that yet another proposition you thought was obvious actually isn’t."

So, good leaders are criticised for policies that look "stupid and suicidal" (i.e. for how they go about running the economy), which the public does not approve of. Bad leaders are criticised for unsatisfactory economic outcomes, which the public also does not approve of.

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PS: I am not saying that it is wrong for the public to make noise. But it is tricky when the rabble-rousers do not really know what they are noising about. Any sensible explanation is rendered useless at such moment. Emotional hightide overwhelms the most basic logic. I presume, in the first place, we vote for leaders whom we believe could lead the country, not for their ability to follow the crowd in areas that require expertise e.g. economic planning, foreign policy, law, intelligence and security matters. Thus the proper stance in facing dubious policies should be of questioning, not of teaching the experts. Likewise, an enlightened government would conduct consultations with the professionals from their respective fields before the release of a policy, e.g. Singapore and Hong Kong.

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Excerpts from Poypips’s Comment, on Time Horizon:

"when someone does good which has negative short-term effects for greater benefits in the future, people start filling the streets shouting… people do have tendencies to be short-sighted… When a doctor tells you to undergo surgery, you don’t tell him ‘Go to hell, surgery hurts. Give me a treatment that I’ll enjoy.’ "

That’s right. One of the problems in making economics clear to people is time horizon. We see, hear and feel the immediate short-term pain. Any long-term gain is unbeknownst to us. And we tend to say the economists live in their theoretical world, when in fact they are the ones who see the "real" reality. Economics does not promise instant wealth, but ensures that seeds of success are sown. That’s why a well-informed and well-intentioned government is treading on eggs. They have a hard task ahead on persuasion. An irresponsible politician would just pick the easier path by pleasing voters now, at the expense of society’s future well-being — injecting sweet poison instead of bitter pill.

Often we see the phrases "widening income gap", "income disparity", and "rising Gini coefficient", but never do we see it referred to as injustice. This is because capitalism is a fair system. Justice essentially is equal opportunity to earn income, not equal income. Those who are more creative, more hardworking, and willing to take more risks are unquestionably rightful to expect more rewards, and to reap all the benefits realised. Likewise, the indolent receives naught. This is just. But the end result of this unfettered capitalism is inevitably extreme income inequality, which as standard economic theory tells us would achieve the highest efficiency gains for the society as a whole, which partly explains its nickname as the dismal science. Among the players, there are winners and losers, but the society as a whole is better off.

We normally measure not our absolute well-being (as in how we fare compared to our predecessors or other countries over time) but relative well-being (relative to our peers, our surroundings). We feel unfair and being left behind to see the affluents in our community, regardless of the improvement from the time of our parents to ours. And governments have to perform outright ransom on the rich to redistribute resources to the poor (i.e. those undeserved) so that everyone enjoys the same benefits (same schools, healthcare, public service etc), to quell the poor’s disquiet. Moreover, we often too readily disregard one of the main losers in this system - the unsuccessful capitalists who have taken risks and failed. The uninformed critics are wholly concerned with how filthy rich the high-flyers are, conveniently ignoring the other side. Therefore, economic growth alone is unstable (though people’s material lives are getting better) and the governments are mandated to orchestrate unjust redistributive programmes (often seen as just) to maintain social order - the so-called "growth-with-equity" model. A corollary is that the rich are already under a compulsory and massive charity scheme. Please think twice in our accusation of them as selfish misers.

The modern system is tilted downward in the income scale. It favours the lower-income group. Those in this group ought to realise that it is their privileges, not their rights, to enjoy the welfare, amenities, benefits and living standards beyond their means which are funded by the rich. They must be appreciative of the largesse not earned by them. Those who abhor this statement can reinvigorate a socialist system, so that everyone is poor and their incomes are nearly equal, and witness for yourself where your definition of justice which does not reward hardwork/risk-taking leads you to. To those who are ready to throw out examples of someone getting rich due not to his diligence but connection or corruption, please note that you are fighting the wrong enemy. Capitalism is not your bull’s eye. It is the politics of it, which exists in all systems.

Note that I am dealing with the idea of justice per se, not with the virtue of embedded liberalism (Ruggie 1982) nor with the demand in an open economy for social transfers to mitigate short-term risk of dislocations due to exposure to external risks (Rodrik 1998; Garrett 2001).

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Garrett, Geoffrey (2001), "Globalization and Government Spending around the World", Studies in Comparative International Development, 35/4:3-29.

Rodrik, Dani (1998), "Why Do More Open Economies Have Bigger Governments?", Journal of Political Economy, 106/5:997-1032.

Ruggie, John Gerard (1982), "International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order", International Organization, 36/2:379-415.

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My reply to Adrian:

The importance of wealth distribution is such a common knowledge that one is embarrassed to re-mention. I am not saying that it is inconsequential, rather the gist of my writing is to remind us that this is in fact unfair, as opposed to the public view. And I want the beneficiaries to be appreciative, instead of regarding the kindness of government as their rights. As mentioned, the issue of wealth distribution and well-being in this sense have an emotional appeal, and it so easily blinds our reasoning of justice.

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My reply to James:

I thought I am being sufficiently clear that I am not opposed to any form of wealth redistribution. In fact, I champion it. Pure capitalism is unsustainable, and I don’t propose to run it.

The crux of my argument is that we often interpret justice as injustice, and injustice as justice. Income inequality does not come necessarily with injustice. But to maintain social stability, wealth redistribution is indispensable. And the recipients should be aware that they are receiving benefits not earned by them, and to be appreciative of the kindness. Cronyism, lobby groups are not specific to capitalism. I am tired of reiterating it’s not the fault of capitalism. This pattern will exist in whatever system.

On 2nd point, Edmund Phelps made a similar remark too in his article in Wall Street Journal titled "Dynamic Capitalism" on 10 Oct, one day after he received Nobel Prize. The example given is the least advantaged do not have access to quality education. Their opportunities are not that equal. We can see how Singapore attempts to counter it over the yrs, by heavy subsidy + loan to make sure no one forgoes schooling for financial reason.

Again in your 3rd point, in the same way, to think of socialism (or whatever system) as fair is to be a puppet in their game as well. Capitalism is not what u are criticising, it’s the politics, which exists in all frameworks. We can only design incentive structures to minimise the problems.