by Benjamin Marks, Economics.org.au editor-in-chief
Review of Ross Gittins, Gittinomics (Allen & Unwin, 2007)
Ross Gittins has all the makings of a real economist: he seems to understand the concept of opportunity cost (p. 5) and mentions without objection the fact that utility is impossible to measure (p. 10). But he then throws it all away by using “the discoveries and methods of psychology to solve economic problems” (p. 6). He forgets about opportunity cost, considers surveys important tools in economics and uses non-market experiments to measure utility.
His excuse for all this is that people are often not rational and economists, insofar as they are economists and not psychologists, are not able to see this (i.e., p. 6 and p. 136). This is incorrect, economists, in their capacity as economists, never assume that people are rational in the sense that they are smart about what they are doing. Moreover, no one has a lower opinion of the rationality of most people than I do. I will now prove this by writing what I think of Ross Gittins and his supportive colleagues, employers and readership.
Economics is devoid of value-judgements. Economists, in their capacity as economists, do not judge the worthiness or desirability of the ends people strive for; all they can do as economists is say whether the means used or policies proposed will bring about the end desired. They do not say whether the end desired is rational or whether they themselves desire it; they do say that it is rational to work towards the end desired, if that is the end desired. This use of the word “rational” is tautological, but not incorrect. Also, it is worth mentioning that Gittins never associates rationality with his own opinion and calls the incorrect views of some economists “too rational” rather than erroneous (p. 136). Rational economics appears to be too good for Gittins.
What economists call irrational behaviour is the use of means towards desired ends that will not bring about the desired ends. For example, if the aim is to increase wages, and the means used is to increase the minimum wage to one million dollars an hour, then economists will say that the increase of the minimum wage is irrational, because it will result in wage decreases as many people will not be allowed to work and the productivity of those who do earn more than the minimum wage will decrease, leading to a decrease in their wages too. (For what it’s worth, that the minimum wage leads to compulsory unemployment and wage decreases is evident no matter where the minimum wage is set, though to varying degrees.)
Now that we have seen that there was no reason for Gittins to neglect economics or turn to the spurious science of psychology, we will proceed to analyse the consequences of this initial error.
Gittins tries to measure utility and to judge whether people are happy doing what they are doing. He forgets that utility cannot be measured. It is peculiar that he never gives the units that utility or happiness is measured in. I do not think he measures width of smile. Yet the author of Gittinomics has the (perhaps unsurprising) arrogance to say things like: “On average, the loss of happiness suffered by people who are unemployed is three times greater than the fall in happiness suffered by people whose family income drops by a third relative to income” (p. 31). “[Y]ou’re likely to gain more satisfaction (or utility) from buying services than from buying goods” (p. 200). “[D]oes money buy happiness? [and without regret:] Happiness is one of the hot research topics in the social sciences” (p. 235).
He asks, “does money buy happiness?” I answer, as the real economist Ludwig von Mises did, can you measure love? Of course not. Then why does Gittins think that he can measure how much we love and like certain things? And to repeat: what does he measure utility in and why does he consider his measurement of utility to be superior than taking into account what people demonstrate in real life to be their preferences?
Gittins forgets all about opportunity cost and similar ideas. Consider his claim that “most [taxation] goes on the things we think it should” (p. 129; see also p. 120 and p. 132). If that is the case, then why does he not call for the abolition of taxation and government, as taxpayers would put their money towards it anyway? Why waste money on its demagogic and coercive apparatus if it has no effect? And how does he know that people support being taxed, which means being stolen off by paying money due to the use of force or threat thereof? The answer, of course, is that he believes utility can be measured. He references studies that show that people like tax increases (p. 137, for example) and even goes so far as to say that people like theft because they read about it in the newspaper and newspapers are bought voluntarily (p. 139). As if people can think the murder rate is too low and that there should be more car thefts and that they would therefore consent to be victim to these things: a logical impossibility. Does he really think that there is not one person who objects to where their tax money is going; he provides no excuse for allowing one group to use force against another, yet he endorses it. But he stoops far lower than this and he is not jesting.
He thinks it fine for politicians to lie to increase the amount of tax we pay, without properly informing us that they are doing it. Gittins says, “Paying more tax isn’t so bad if you don’t notice it” (p. 136). Anyone with the slightest sense of self-respect would say that it is more reprehensible, not less. He tries to substantiate this by saying that “we prefer to be taxed in less visible ways” (p. 136). Surely, what follows from this is that people don’t want to be taxed, but for Gittins it means that we should continue to be taxed by government as long as we are not told much about it. A stealthy thief is a better thief than a clumsy one; but a better thief, not a greater asset to society. What ever happened to Gittins knowledge of opportunity cost? People are forced to pay tax, if they were not forced to pay it they would put their money elsewhere or if in the same place then the use of force is unnecessary and wasteful. Either way the use or threat of force by government is indefensible; it is either unjust or inefficient — and is, in fact, both.
The faith Ross Gittins has in government is astounding. He claims, “The politician who professes to be worried about childhood obesity, but won’t contemplate banning advertising of junk food on television, isn’t dinkum” (p. 120). So if a politician is worried about blisters he should provide free socks and shoes? What if a politician is worried about earnestly dissenting journalists — not that Ross Gittins would be affected —; should government censor journalists?
He says health care is too important to be left to the market, even though he admits the market would provide it more efficiently (p. 110). His reason is that it would not be fair for poor people if it was voluntary. Gittins gives no reason for this; he just says that if they had no insurance and no one supported them they would be left to die. Now I cannot fault this reasoning, but fail to see what it has to do with why we should deny poor people the opportunity to voluntarily pay insurance to voluntary providers that are not sabotaged by government regulation. If poor people need to have government provide them with health care, as Gittins claims, then why not also food, friends, sexual partners and everything else? Either the principle Gittins puts forward is true or it is not. If it is, then we should have a totalitarian government; if it is not, then we should have no government at all. In any case, Gittins is full of compromise and hypocrisy and … well, I should stop describing him in this way; he will think I am praising him for not calling him rational. So I think I better end the review.
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