The Key Logical Fallacy of Statism

I just read an article in Bloomberg View yesterday by Cass Sunstein, who is a law professor at Harvard.  It was a roundup of a number of books published last year on “behavioral economics”.  For those who don’t know it, behavioral economics typically focuses on the biases and systematic errors in human behavior.

 

communist angelsSurely everyone has heard an argument along these lines before: socialism would really work if only it were done right! For starters, it would need to be administered by a host of angels, so what you see above should be considered the ideal communist bureaucrats.

Image via pixgood.com

 

In his review of the book Phishing for Phools by George Akerloff and Robert Shiller, Sunstein concludes that one of the major contributions of the authors “is to show that if we care about people’s well-being, the invisible hand (i.e., free markets) is often the problem, not the solution.”

 

cass-sunstein-ciaCass Sunstein, a committed, and as we believe, truly dangerous statist, who would likely have felt right at home in Stalin’s politburo. We have discussed this crypto-communist weirdo previously in these pages (see The Taming of Deluded Conspiracy Theorists) and so has incidentally Dr. Machan (see Rights and Government). Sunstein is not only an enemy of the free market, he inter alia once opined (in an academic paper, no less) that Americans should henceforth only be fed government-approved information. In order to achieve this, he proposed that government agents should infiltrate the web sites of “conspiracy theorists” (=anyone who thinks the government may be lying about something) to spy on them and discredit them, and if that doesn’t help, government should tax them or outright ban “conspiracy theorizing” (wise men like Mr. Sunstein would presumably determine what does and doesn’t constitute a “conspiracy theory”). He failed to mention how those breaking the ban should be punished (forcible relocation into a reeducation camp perhaps?)

Photo via 911blogger.com

 

I guess that this is the fundamental difference between the statist and the libertarian mindset.  A statist looks at the results of behavioral economics and concludes that, since peoples’ decision making is clearly fallible, we need someone else to make decisions for them.

A libertarian mindset looks at the same results and concludes that if people are fallible, then the absolutely last thing in the world we should do is to give them sovereignty not only over themselves but over other people as well.  Because, if people are prone to make bad decisions in their own lives, at least we know that:

 

  • They will bear the direct consequences of those decisions, which will give them a strong motivation to avoid errors and certainly not repeat them [1];
  • Their bad decisions will affect only one or a limited number of people, as opposed to having the widespread effects of a government policy; and
  • Their poor individual decision making will not be magnified through highly imperfect political processes, including voting and the distorted incentives of bureaucracies.

 

The collective decision making of politics contains none of these limitations on human fallibility. This makes it a total non sequitur to conclude that, since people are fallible, we should expand their power to coerce others.

Of course, the way that statists rationalize this is to assume that only “the best and brightest,” preferably someone a lot like them, will be empowered to make these decisions.  In other words, they rationalize this by ignoring the entirety of human history and common experience.

This logical fallacy is another manifestation of a phenomenon I have often discussed in this blog.  This is the totally destructive belief that, if it can be demonstrated that a free market is not perfect in some way, then this automatically creates an argument for government intervention.

This standard is way too low.  The real test should be whether an imperfect – but small-scale, competitive, subject to learning, non-coercive, incentivized, “antifragile”[2] and informationally efficient – market is better than a hugely imperfect political process.  By this correct standard, the case for intervention becomes far rarer.

 

Footnotes:

 

[1] One of the fundamental flaws of behavioral economics, and much thinking about consumer choice, is that it ignores the ability and incentives of people to learn from their mistakes.  For example, much is made by certain social thinkers about the ability of marketing to influence consumer choice.  This ignores the fact that most things people do and buy are repeated, and whereas someone might be induced to try something through marketing, they are far less likely to be convinced to continue with it unless it performs.  This thinking also ignore the role of acquisition costs: it generally costs a lot of money to “acquire” a client.  A business that is built around acquiring clients and then losing them through poor performance will not last long.

[2] I am using term this in the way of Nassim Nicolas Taleb in his book Antifragile: Things that Gain from Disorder.  Taleb draws heavily on the work of Friedrich Hayek for this book.

 

Image captions by PT

 

This article was originally posted at Economic Man.

Roger Barris is an American who has lived in Europe for over 20 years, now based in the UK. Although basically retired now, he previously had senior positions at Goldman Sachs, Deutsche Bank, Merrill Lynch and his own firm, initially in structured finance and latterly in principal and fiduciary investing, focussing on real estate. He has a BA in Economics from Bowdoin College (summa cum laude) and an MBA in Finance from the University of Michigan (highest honors).

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

5 Responses to “The Statist Mindset”

  • woodsbp:

    The review by Sunstein referred to by Barris is quite short: –

    “Behavioral science has become the usual term for psychological and economic research on human behavior, often designed to explore people’s biases and blunders. For that research, 2015 has been a banner year, with an unusually large number of important books. Five of them stand out — and two of these weren’t even written by social scientists.

    “Phishing for Phools,” by George Akerlof and Robert Shiller, is an instant classic. Akerlof and Shiller contend that free markets lead companies to “phish” — to exploit both the ignorance and the behavioral biases of “phools” (also known as human beings). One of their major contributions is to show that if we care about people’s well-being, the invisible hand is often the problem, not the solution.

    That hand sometimes punishes companies that fail to take advantage of biases, such as the tendency to ignore fine print or to show unrealistic optimism. Akerlof and Shiller are well aware that the free market does a lot of good, but they demonstrate that it can reward businesses (such as mortgage providers, cigarette companies and sellers of high-calorie foods) when those companies really don’t help their customers, but actually harm them.”

    It scarcely warrants this: -“Cass Sunstein, a committed, and as we believe, truly dangerous statist, who would likely have felt right at home in Stalin’s politburo.”

    Whose is the “we” here Mr Barris? “Dangerous” is a descriptive adjective usually reserved for felons. Prof Sunstein is a convicted felon then? “Stalin’s politburo”? That’s a truely pathetic remark: really unworthy. And that ‘we’ again: “We have discussed this crypto-communist weirdo ….” a crypto (secret, concealed) communist? Well, Mr Barris thanks a bunch for “outing” the gentleman for us – you know the ones who are blinkered, and all. Praise the Lord! Would Mr Barris allow that Rep Raul Ryan (R-WI) the new Speaker of the House, is a libertarian? Or perhaps he’s just a crypto-statis – waiting to be “outed” by ……………. (fill in the blank space yourself).

    For the benefit of the “Great Unwashed”: – Outside of undergraduate textbooks, there is no existential, physical entity known as the “Free Market” (it has to be physical if its to exert the influence attributed to it!). We do indeed have a plethora of so-called markets which appear to be perennially rigged in someones favours; hence, are unfree by definition. For Free Market, you might consider substituting, “Holy Grail”.

    The term “Invisible Hand – as used by Smith and dreadfully abused and misused by mutlitudes of folk, is in fact an admission by Smith that he was at a complete loss to explain something that he observed, so he invoked the term to assuage his own lack of understanding. Basically Smith found himself in a theoretical ‘Gumption Trap’. To understand his dilemma just substitute his term with any of the following: Karma; Will of God; Ins’ha Allah – or whatever socio-religious beverage you’re having yourself.

    Pater – you do yourself no favours by permitting Barris, or any other author, to slag-off folk using personal invective. It serves no useful or informative purpose whatsoever.

    • JohnnyZ:

      woodsbp,

      You are completely misguided here: finally Roger Barris writes a sensible post (as opposed to his picks for the US president) and you complain about it.

      Cass S is really a dangerous propagandist with an agenda. He is for more state control, even on thought, applying the salami tactic and pretending to care for the common people, while aiming at a 1984-style totalitarianism, one piece at a time.

      Wake up man!

      By the way, the comments below the photos are from Pater.

      • woodsbp:

        Thanks for the update. Misguided? Hmmmm. Prof Sunstein may indeed have an agenda – but so do the Kosh(sic) Bros. Having an agenda is one thing, but having both the financial and political resources to implement that agenda are another matter entirely. I’d put Cass firmly in the ‘loser’ category. But not the Bros Kosh. So whom should I be concerned about?

        The cartoon posted to-day is useful. Just put “Cass S” on one arrow and “Bros Kosh” on the other. You choose which direction is appropriate. Actually, its not really funny. But no worries!

        Thanks again.

      • Roger Barris:

        Thanks, JohnnyZ, for pointing out that the comments below the photos come from PT and not me. Although, frankly, from everything that I have seen Sunstein write (and I read most things that he posts in BloombergView), I don’t think that PT has treated him unfairly. There is also the fact that he is a lawyer (strike one) and he teaches at Harvard (strike two and probably strike three). Frankly, he probably deserves far worse than the comments meted out to him by PT.

        As for your comments about “finally…sensible post.” Ouch. Have you read all of my posts? You obviously don’t like my musings about the terrible, but still necessary, political choices that we have to make. And I don’t think that I have picked anyone for the US president. I have simply given some ordinal preferences: Clinton>Trump (for tactical reasons), Christie>Trump, Anybody>Trump. Do I take it you are a Donald fan?

        And, as for the original comments by woodsbp about “free markets” and “invisible hand,” these are frankly just bizarre.

        Roger

  • Crysangle:

    Fortunately state does not exist .
    Unfortunately a lot of people go about acting as if it does .
    Show me a country even, and I will show you a patch of ground that was here long before the idea and will be there long after.
    Show me government and I will show you pretence.
    Show me authority and I will show you someone trying to convince.

    So please , show me your state , I have been looking for it for a long time , and all I have found is an emptiness guarded as if the creator himself abided behind its façade .

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • No results available

Support Acting Man

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

     
    Buy Silver Now!
     
    Buy Gold Now!