In pre-modern times, people believed in the doctrine of signatures. This was the idea that the cure for an ailment must resemble the ailment itself. So, for example, eyewort was used as a remedy for vision problems and toothwort for toothache because the flowers of those plants resembled eyes and teeth. As Thomas Gilovich and Kenneth Savitsky write:
Historically, people have often assumed that the symptoms of a disease should resemble either its cause or its cure (or both). In ancient Chinese medicine, for example, people with vision problems were fed ground bat in the (typically) mistaken belief that bats have particularly keen vision and that some of this ability might be transferred to the recipient (p685 of this big pdf).
There was just one problem with this – it was wrong.
However, although modern medicine has corrected this error, we still see it in economic policy. What Gilovich calls the “like goes with like” dominates popular attitudes to economic policy. For example:
- American voters who believe cheap imports have depressed domestic wages support the introduction of tariffs.
- People who believe (mostly wrongly) that immigration has depressed wages favour immigration controls.
- Leftists support higher minimum wages as a solution to low pay.
- People blame the Bank of England for low interest rates rather than global secular stagnation or tight fiscal policy.
In these cases we see a modern version of the doctrine of signatures – the belief that the cure must resemble the ailment. So higher import prices are the solution to cheap imports; higher minimum wages the solution to low pay; monetary rather than fiscal policy is to blame for low interest rates, and so on.
And just as the doctrine of signatures was wrong in medicine, so it is in economics. Even if tariffs or minimum wages would do some good, there are better alternatives. To the extent that immigration or cheap imports raise inequality, a better solution might be more redistributive tax and benefit policy. And it’s better to help the low paid by increasing demand for labour through expansionary macro policy and by increasing their bargaining power than by minimum wages or immigration controls.
So, why don’t people appreciate this sufficiently? It’s not just the lousy lying media that’s to blame. It’s because the same representativeness heuristic that underpinned belief in the doctrine of signatures is also at work here: people believe that effects must resemble causes. They are, David Leiser and Zeev Kril have shown, bad at connecting economic phenomena. Instead, says Leiser, public attitudes to the economy are shaped by a “good begets good” heuristic (pdf) – the idea that good things have good effects. That’s very similar to the “like goes with like” heuristic described by Gilovich and Savitsky.
I fear, however, that this is a case where diagnosis is easier than cure. It’s easy to see that popular attitudes to the economy are mistaken, but much less easy to see how they might be corrected, especially when so many people have an interest in not correcting them. It took the medical profession centuries to rid itself of the doctrine of signatures. It might take as long for public attitudes to economic policy to improve.