Alfred Marshall (1842-1924), the father of neoclassical economics, famously wrote that good economics is based on common sense:
A man is likely to be a better economist if he trusts to his common sense, and practical instincts, than if he professes to study the theory of value and is resolved to find it easy.
Alfred Marshall, Principles of Economics (8th edition, Macmillan and Co., Ltd., London), book V, chapter V, paragraph 15.
Scott Sumner disagrees. He observes that economics almost always contradicts common sense. This fact, according to Sumner, explains why economists find it difficult to converse with non-economists.
One way of illustrating the extraordinary counterintuitiveness of economics is to consider how society views recent Chinese history. Let’s start with Mao’s “Great Leap Forward,” which led to the death of untold millions. Why has perhaps the greatest disaster to ever afflict a single nation received relatively little attention from artists and historians? The first systematic account of this episode is only now being published, whereas other great disasters have been extensively covered in hundreds or thousands of books, both fiction and nonfiction. Maybe the problem is that the Great Leap Forward was a disaster that can only be made sense of from the (counterintuitive) economistic perspective. In all of my reading of history I only recall a few brief mentions of this tragedy. And the discussion was mostly anecdotal — stories of farmers building backyard steel mills. I suppose the historians thought they needed some sort of common-sense explanation that people could visualize, but backyard steel mills can hardly account for a disaster of such vast scale. The obvious economic explanation is quite simple; reduce farmers’ incentive to produce to near zero, and food output plummets. But how do we explain to school children that millions had to starve because of a policy that encouraged people to share?
Many right-wing economists are fond of Orwell’s Animal Farm, which is a barely disguised satire on Stalin’s Soviet Union. But they shouldn’t be, as this is a deeply misguided book. Orwell was a great man, but he was not very knowledgeable about economics. In Animal Farm we are led to believe that the major problem with the Soviet Union was hypocrisy, i.e. that they didn’t quite live up to their egalitarian ideals. In fact, had the Soviet Union adopted a perfectly egalitarian policy regime, it would have been an even more brutally inhuman system. (Just imagine the reaction of Western intellectuals if it was discovered that Animal Farm had inspired Mao to adopt the Great Leap Forward, or the Cultural Revolution!) ….
Today, tourists visualize China’s development in terms of big shiny new buildings in the cities. What they don’t know is that they are seeing the fruits of government policies that were financed by extracting resources from the productive (and less visible) sectors of China’s economy (the rural areas and the urban entrepreneurs) and diverting them to grandiose (and statist) projects that actually slow China’s growth. In economics, things are almost never as they seem.
Scott Sumner, “The Great Danes: Cultural Values and Neoliberal Reforms”, September 2008, pp. 31, 32.
The entire essay is worth reading, even though it is the unrevised draft of a paper written nearly two years ago. Economist Scott B. Sumner (PhD Chicago, 1985) teaches at Bentley University, a business school located in Waltham, Massachusetts. He blogs at The Money Illusion.
Tags: China
