Populists as snake oil sellers

Simon wonders why disenchantment with globalization has caused people to turn to what he calls snake oil salesmen. That phrase is apt, because snake oil salesmen thrived for decades. And some of the reasons they did so might be relevant today.

My source here is a wonderful paper (pdf) by Werner Troesken which describes the massive growth in patent medicines in 19^th century America. This suggests to me four points of similarity between snake oil salesmen and populist politicians.

First, patent remedies weren’t entirely ineffective. They often contained alcohol or opium which gave people at least a short-term pep. As Ran Spielger shows (pdf), if people mistake this short-term boost for a genuine cure (which is especially likely if their ailment would have cleared up anyway) then demand for quacks will grow. In this tradition. Trump is mixing harmful anti-globalization policies with a helpful fiscal stimulus.

Secondly, the very fact that patent medicines failed to eradicate chronic ailments meant that the market for them grew over time as more people got ill. And ill people are desperate, and willing to take risks. Troesken quotes Albert Prescott, a chemistry professor writing in 1881:

Just as men driven to straights will put their last pittance into the lottery instead of the savings bank…so, with the better excuse of bodily prostration and nervous restlessness, against his own judgement, and suffering with a glimmering apprehension of the wholly unscrupulous character of the human harpies who practice on his credulity, the sick man tries one game of chance among the unknown remedies.

This, of course, expresses an element of prospect theory – that people facing losses take risks. And this same thing helps explain the rise of populism: people who feel they are losing out from the existing order gamble on change.

Thirdly, patent medicine sellers devoted huge efforts to marketing – an effort which consisted of gross over-hype, claiming their products to be “most efficacious in every way.” Troesken says:

Why promise to cure just one disease, and unnecessarily limit your market?  Promise to cure everything, and more people try the product—the more vile, painful, and incurable the disease, the better. Similarly, do not just claim to make the patient feel better, promise a full blown cure.

Genuine doctors were powerless against this sales drive, because ill-informed customers could not distinguish between quality and quackery. Troesken says:

The high-cost provider would have trouble signaling high quality through advertising because all providers, even the low-quality ones, are using their advertising to signal high quality.  Consumers would therefore discount the claims of the high-quality provider just as much as they discount the claims of the low-quality, dishonest provider….The…physician might have also told the patient: “don’t waste your money on patent medicines; they will not be able to cure you either.”  But absent some independent authority telling patients that the physician knew more than the advertiser of patent medicines, it is not clear why patients would have attached any more meaning to such a statement than they attached to advertisements

There’s a direct parallel between this the inadequacy of the media today. The BBC’s decision to become impartial between truth and lies means that the “independent authority” that might help people distinguish between quacks and experts is indeed absent.

Finally, quacks succeeded by denying that proper doctors had any genuine expertise – a denial aided by the fact that their expertise was indeed limited*. Troesken quotes Scribner’s Monthly from 1881, a magazine which advertised patent medicines, despite objections from physicians:

There is no such thing as medical authority…. The people are, and are obliged to be, the only judges of medicine and of physicians

When Jacob Rees-Mogg says that “experts, soothsayers, astrologers are all in the same category” he is simply echoing a 19^th century shyster – a fact which perhaps won’t surprise you.

My point here is simple. There’s nothing new under the sun. Simon is dead right to liken populists to snake oil salesmen because both use similar methods.

And the methods work. Liberals like to think that in the marketplace for ideas, good ideas will beat bad ones, just as in the marketplace for products good ones will displace bad ones. History, however, warns us that in both cases, it isn’t necessarily so. 

* You might see another parallel here with today’s debate between elites and populists.

Comments

[AliRadicali]

If you're going to draw this parallel, you *have* to confront the embarrassing fact that the Medicine of the 19th century was hardly any more reliable or science-based than the quackery it stood opposed to.
Likewise, the globalism which this article casts as the "real" cure is about as reliable as phrenology, astrology, homeopathy and the rest.

Instead of fooling your readers with bad analogies, why not try to argue the merits of globalism and free trade? Maybe because these supposed merits are as hard to find as the medical benefits of leeches and bloodletting.
Oh well, at least you tried....

¯\_(ツ)_/¯

[chris]

@ AliRadicali - globalization contributed to a massive rise in incomes for the world's poor, and the 1st decline in global inequality since the industrial revolution. That's not failure.
http://voxeu.org/article/greatest-reshuffle-individual-incomes-industrial-revolution

[Patrick Kirk]

The invocation of prospect theory to explain desparate people taking stupid risks bothers me. It implies that any system that gives poor people a direct vote on important decisions will be prone to having bad decisions when times are tough.

Not saying you are wrong. It just makes things like the idea of people doing their own retirement planning or people choosing their own diets look very risky. Not to mention referenda...

[Keith]

The comparison with diets is appropriate. There is no evidence any work. But people spend millions on diet books and often expensive foods recommended therein and then switch to another etc.

On the other hand while there is much controversy in contemporary economics driven by partisanship the effects of trade wars are not uncertain as we have history to guide our judgement. Disrupting trade by tariffs would reduce wealth ala Adam Smith as exampled by what happened in the 1920s and thirties. Helping to create violence and war. Not a good plan.

[nick]

I can't help wondering if Simon Wren Lewis hasn't sold a fair bit of snake oil himself over the years. He does seem to have advocated one cure for nearly all economic ills. Whether the problem be low productivity growth, sluggish total growth, poor income distribution, persistent unemployment, poor public services - or, indeed anything else - we can be pretty much sure that Dr Simon will advocate the 'cure' of additional public spending.

[Dave Hansell]

The problem with this line of argument is that the key term, "Populism", is assumed rather than adequately defined.

There are all sorts of people coming out of the woodwork to define populism according to their own requirements and it is not being limited to the simplistic analysis of those who voted for Brexit and Trump. By simplistic here I mean the idea the caricature that everyone in those categories are right wing knuckle dragging neanderthals.

The unfortunate facts are that there are influential behind the scenes actors who view anyone and everything not committed totally to economic neo - liberalism, political neo - conservatism and social neo - feudalism as being in the "populist" camp. Which includes all those "dogs", "Trots", "Jihadists", and "Nazi Stormtroopers" who (whether they were managed out of a vote or not) support the type of policy alternatives associated with and around Corbyn; as well as anyone North, or even South, East and West of Hadrians Wall who supports independence from the Greater English State in Westminster.

That's what Blair and Murphy 's latest initiative is all about. In their book "populism" would encompass every progressive movement from Wat Tyler through to the Levellers/Diggers, Chartist's, Sufferagettes and Trades Unions. And they are not alone within the British establishment, which will gladly use the simplistic stereotype of the small hardcore Brexit and Trump support to label anything and anyone progressive as populist.

Now that's the real snake oil here.

[aragon]

How can economic claim credibility after we have lived through the economics advice and policies inspired by Hayek and Friedman.

How is it possible to distribute an extremely influential paper without providing the data, and methodology in economics (No peer review for three years).

Yes, Excelgate.
http://danielbenami.com/2013/04/29/the-great-excelgate-scandal/

"Economics is a profession that fixates on the idea of getting incentives right. When two prominent economists can make a major error on work that had a huge impact on economic policy around the world and face no real consequences, it says a great deal about the incentives in the economics profession."

https://www.bloomberg.com/news/articles/2013-04-18/faq-reinhart-rogoff-and-the-excel-error-that-changed-history

"Reinhart and Rogoff have sometimes flatly asserted that high debt leads to slow growth when other explanations are possible."

As for Chris's reference to the elephant graph:
"Most people are concerned with their incomes as compared to their national peers. Milanovic and Roemer (2016) show that what seems a very positive development (that is, lower global inequality) when individuals are assumed to be concerned solely with their absolute incomes becomes much less positive when we also include in their welfare functions a concern with relative positions in national income distributions. Then the dominant feeling across the world, reflecting increasing national income inequalities, becomes one of a relative loss."

From the Elephants mouth, your audience feels the losses, and did not consent to the sacrifice.

[MJW]

The public arena has long been full of snake oil merchants, and Left has been more than happy to accomodate some of them, not that it's a fault of left in particular, it's just a question of taste! The public arena is stacked with pressure groups, special interest groups, public committees, psuedo-charity campaign groups, quangos, NGOs etc... all stacked with charlatans offering to solve the problems of our time (according your personal tastes): climate change/racism/sexism/homophobia/third world poverty/inequality/religious intolerance etc etc... All for a "reasonable" service charge for themselves or their associates. All sufficiently vaguely defined and monitored to make their mission open ended. All of such critical and perpetual importance as to require indefinite funding.

[Dave Timoney]

Snake oil can become respectable. Coca Cola, which started out as a patent medicinal tonic, is the most famous example. This transformation was achieved by cutting out the cocaine and ramping up the advertising - the red-suited Santa Claus being the original Xmas mega-ad.

The lesson to be drawn from this is that (limited) efficacy is only useful in establishing a toehold in the market. Once you have brand loyalty, you can proceed to degrade the product. I suspect this has been Donald Trump's MO since the 1970s.

[Keith]

Trump probably never had a good product to degrade. He does depend on a kind of credulity and cargo cult economics where by wealth signals competence or even moral virtue to a segment of the public. He is not really any different from other Republicans or conservatives in that regard, but differs in his unpleasant bigoted associates who do not hide the racism any more. If he follows the path of corruption and crony capitalism like some other recent con men then that will certainly be bad for the US economy and so the world economy too. He does not do joined up thinking and his ideas are thus incoherent, with a large tendency to ignore facts that contradict his world view.

As for "populism" I suggest that in fact it today means "a vast right wing conspiracy" as Hillary Clinton would put it to discredit Liberal ideas of free trade and domestic redistribution. So it is not really the same thing as the populism of the inter war period 1919 to 1939 or before 1913 in the US with the progressive movement.The version of populism put about by trump and Farage is a plot to enrich the one per cent and distract the masses from their plight with Nationalism, and xenophobia, and assorted prejudices.

I suppose scottish independence need not be a bad idea in theory if the divorce with England could be managed so as to avoid harm to both or either Scotland or England. That may be a difficult job to do. I suppose whether you will take the risk of failure depends on how strongly you support the idea of separation. That is not an economic problem but requires very careful planning.

[reason]

Patrick Kirk http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2016/11/populists-as-snake-oil-sellers.html?cid=6a00d83451cbef69e201bb09565ba2970d#comment-6a00d83451cbef69e201bb09565ba2970d

"The invocation of prospect theory to explain desparate people taking stupid risks bothers me. It implies that any system that gives poor people a direct vote on important decisions will be prone to having bad decisions when times are tough."

So you are a basic income supporter then. Surely, the solution is not to let people become desperate in the first place.

[reason]

MJW http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2016/11/populists-as-snake-oil-sellers.html?cid=6a00d83451cbef69e201bb09566452970d#comment-6a00d83451cbef69e201bb09566452970d

"The public arena has long been full of snake oil merchants, and Left has been more than happy to accomodate some of them, not that it's a fault of left in particular, it's just a question of taste!"

Yes, but it is fairly well established that for some reason the right is more gullible (perhaps it goes together with authoritarianism).

[Dave Timoney]

@Keith,

Trump did start off with a "good product" - the regeneration of parts of Manhattan in the 1970s at a time when the city was near-bankrupt - though it was one that required huge tax-breaks, friendly relations with the Mob and labour exploitation. Since then he has taken to licensing the brand: Trump Steaks, Trump Suits etc.

[Denis Drew]

As my old Bronx doctor, Seymour Tenzer, put it: "All these histories are bullshit -- I got punched in the chest; that's why I've got a lump." [:-)]

Trump's victory is down to the disappearance of the $800 job for the $400 job. That subtracted from the vote in the black ghettos – and added to the vote in the white ghettos -- both ghettos being far off the radar screen of academic liberals like Hill and O.

I notice the white ghettos because that is me. My old taxi job (much too old now at 72 3/4) was “in-sourced” all over the world to drivers who would work for remarkably less (than the not so great incomes we native born eked out). Today's low skilled jobs go to native and foreign born who willing to show up for $400 (e.g., since Walmart gutted supermarket contracts). Fast food strictly to foreign born who will show up for $290 a week (min wage $400, 1968 -- when per cap income half today's).

Don't expect the 100,000 out of maybe 200,000 Chicago gang age males to show up for a life time of $400/wk servitude. Did I mention, manufacturing was down to 6% of employment 15 years ago -- now 4% (disappearing like farm labor, mostly robo; look to health care for the future?)?
http://www.cbsnews.com/news/gang-wars-at-the-root-of-chicagos-high-murder-rate/

6% union density at private employers = 20/10 BP which starves every healthy process in the social body = disappearance of collective bargaining and its institutional concomitants which supply political funding and lobbying equal to oligarchs plus most all the votes ...

... votes: notice? 45% take 10% of overall income -- 45% earn $15/hr or less -- a lot of votes.

[Keith]

Trump did start off with a "good product"

by means of

"huge tax-breaks, friendly relations with the Mob and labour exploitation."

oh well, that is not reassuring.

[stewart]

Back to @AliRadicali's point, I think the comparison of many modern economists to 19th century medics is quite apt. Read something like the Emperor of all Maladies to understand the egotism of surgeons of who didn't know what they were doing. If globalisation is the main reason for the reduction in world poverty we should ask why it has not extended to the rest of the world. Acemoglu and Robinson's explanation is more convincing and other authors have given convincing reasons why globalisation has held back many third world countries.

[Arthur Murray]

"Whether the problem be low productivity growth, sluggish total growth, poor income distribution, persistent unemployment, poor public services - or, indeed anything else - we can be pretty much sure that Dr Simon will advocate the 'cure' of additional public spending."

Nick, how about this revised version?

Whether the problem be low productivity growth, sluggish total growth, poor income distribution, persistent unemployment, poor public services - or, indeed anything else - we can be pretty much sure that the Conservatives will advocate the 'cure' of "reducing trade union power".

[Another Chris]

Jacob Rees-Mogg's critism of "experts" is rather surprising in view of his own self proclaimed expertise as a stock picker for Somerset Capital Management. http://somersetcm.com/