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.
Given that the NHS is obliged to be polite (if negative) about homeopathy, due to high-profile supporters among the anti-expert crowd, I'm not sure it's quite true that the medical profession is wholly "rid" of the problem.
Posted by: Dave Timoney | November 16, 2016 at 05:49 PM
Staring death in the face has a way of sharpening minds. Economics doesn't have that punch. Unemployment, perhaps - but not for the policy setter. Only their fellows.
Posted by: ADifferentChris | November 16, 2016 at 08:46 PM
Another one for you. Increasing the level of housebuilding will slow the rate of houses prices increases. The actual effect is so marginal as to make hardly any difference. House prices are 99% to do with credit conditions.
Posted by: Mark Brinkley | November 17, 2016 at 07:31 AM
"To the extent that immigration or cheap imports raise inequality, a better solution might be more redistributive tax and benefit policy."
Something like this?
US welfare spending has increased from $949 per caput, in 1980, in 2009$, to more than $1,300 by 2015.
http://www.usgovernmentspending.com/spending_chart_2006_2026USd_17s2li111mcn_40t
Posted by: Postkey | November 17, 2016 at 11:09 AM
I'm a journalist, but I read lots of academic stuff (and I'm a regular reader of this blog.) My comment is a general one: in general, you write extremely clearly - but every now and then you throw in words like 'heuristic' which are purely academic words. You will rarely or never see this word in a mainstream media publication (unless it's to discuss the meaning of the term) and that's for a good reason: only academics use it, and it will annoy most non-academics. Academic words like this are roadblocks which may please academic readers but will irritate everyone else, even when they do know what it means. It's fine to discuss 'doctrine of signatures' because you explain very clearly what it is. I'd be a bit careful with 'secular stagnation' because while most economically literate people will know what it is, some won't. Just trying to help, here.
Posted by: Nicholas Shaxson | November 18, 2016 at 11:48 AM
At the low end of the wage scale, immigration has affected the ability of employees to unionize. There's a reason that most US chickens are prepped by illegal immigrants. In those low end markets, there is lots of evidence that immigration has hurt wages by destroying bargaining power. Even in England, an employer faced with uppity employees could easily put an ad in the Warsaw paper and avoid the problem completely, at least pre-Brexit.
The attraction of higher minimum wages is that they are something that can actually be implemented in our current political climate. Sure, the right solution might be to increase worker bargaining power and stimulus spending, but those just aren't going to fly in the current political climate. A higher minimum wage, particularly at the state or city level will.
I agree with you to some extent on cheap imports. Their main impact has been the loss of the innovative community and drive to automate further domestically. We've just started to see the real long term cost of this. Follow the "maker" community a bit, and you'll get an idea of what I am talking about. Anyone who values the idea of place in the human psyche also understands the importance of import replacement.
One problem is that there are two economies. As a Marxist, you might have noticed this. There is the economy that most people live in. They go to work, if they can find it. They earn money. They spend it mostly on goods like a place to live, stuff to eat, things to wear and so on. In the other economy, which is probably almost as big, people earn money based on the orientation of magnetic fields in the computers of various banking firms and they spend most of that money on buying shares of corporations, symbolic goods with minimal labor content, prestige items and so on.
If you assume one economy, it is hard to explain a lot of things e.g. the lack of risk premium for share ownership. If you assume two economies, things get a lot simpler. I think economists get confused because the two economies use the same currency, but it might be something deeper than that.
Posted by: Kaleberg | November 20, 2016 at 12:52 AM