Five dumb things Politicians think about Economics and how they are hurting Halifax
Generations of Halifax politicians and bureaucrats have often had a muddled understanding of the economy they preside over. Nowhere is that more muddled today than in Halifax. Here’s the top five countdown of the economic mistakes that got us in the current mess and what to do about it. 5/ People are rational and corporations are kept honest by the market The notion that people are rational is a convenient fictional construct for politicians. Politicians forget that corporations, which were thought to be efficient but are full of irrational human beings acting in concert, must be properly regulated to inhibit fraud & theft, prevent natural risk-takers from getting carried away, and prevent bad ideas from driving out good ideas and destroying our economy and ecology. Today in Halifax land speculators, known in polite company as 'developers' work within a political powerful and dominant real estate class to carry out deals in perfectly rational pursuit of their individual self-interest. Yet with rudderless at best leadership, few controls on the market, and a belligerent disconnect between what we know is pleasant development and what we're actually allowing we're in the precarious position of adding more and more symbols of success and prosperity that have the effect of making Halifax less successful and prosperous, not to mention noticeably less pleasant to look at. 4/ Groupthink Groupthink is a psychological phenomenon that occurs within a group of people in which the desire for harmony or conformity in the group results in an irrational or dysfunctional decision-making outcome. For Halifax politicians and bureaucrats, many careerists, being a politician is the best job they ever had or ever will have. The most money, the most power, the most fame, the best pension and post retirement opportunities. They are going to do and think anything that keeps them on track and in the group. A properly functioning democracy is an argument we have with ourselves about the shape of things to come. It’s never settled. It should be messy and loud. And from time to time we should see politicians break ranks, speak out of turn, argue, and even quit in disgust. If we don’t see these features you can be sure that things aren’t working right. We’re not seeing them now. Economist John Kenneth Galbraith described it as “a vested interest in error” on the part of the participants, who, as members of an in crowd are willing to suspend disbelief. Galbraith quotes Walter Bagehot – “all people are most credulous when they are most happy“. To this, he adds an elegant statement of the power of the vested interests who condemn and criticize doubting voices in an almost tribal manner. In Halifax they call curious, questioning, concerned, citizens ‘naysayers’. 3/ Endless growth is possible Since the end of WWII there has been a notion that growth is the answer to every economic problem. And within some narrow range that has been true. The amazing growth in the economy after WWII took a public war debt that seemed insurmountable and made it a trivial expense relative to the size of the powerhouse economy. There’s even pseudoscience to back endless growth up. The blind belief in human progress. As things get scarce the markets will always be incentivized to find a new technology and innovation will wipe away all obstacles to growth. Again, sure, but only up to a point. Right away we run into trouble. There are in fact limits to everything. That’s the basic premise of economics… and an obvious fact of life. It is not reasonable to assume endless growth in a finite province, or world, with limited resources.
The thing the politicians fail to understand is that on the economists famous graphs all lines are curves.
Example. Let’s plot cake vs. happiness. No cake and we’re unhappy. A little taste of cake and we’re happy, a nice piece of our favourite cake and we’re happier still. A whole cake on our birthday and we’re genuinely glowing, if we have friends to share it with. Eating a whole cake… yuck. Living on just cake? Well, that’s a famously bad idea. Too much is too much and our happiness goes down. After a point cake becomes unhealthy, or even a form of torture. It’s likewise with everything. There are always limits. Even to an economy. In economics ALL lines are curves. It’s the politician’s task to know where we are on those curves, accept, and explain those limits to people who want more but should not and cannot have it for the greater good and their own. It’s a task few politicians accept. Growth is not the answer. But there is an answer. It's not a quick fix or easy way. It's not a big vote grabber. But throughout all of human history's troubles there is only one thing ever known to beat all. What magic can stop wars, cure disease, lift people out of poverty, make life cleaner and better for all, feed everyone all they need? Education. Education is the imparting of factual information and knowledge to the full capacity of every citizen. Endless education and self-improvement is possible. 2/ The Sunk Cost Fallacy There’s lots of ways to explain the sunk cost fallacy. We’ve all made this error. The simplest way to explain the problem is to say that: We shouldn’t hold on to our mistakes just because they cost a lot of money and we spent a long time making them. In economics, a sunk cost is any past cost that has already been paid and cannot be recovered. It’s not hard to imagine examples in our personal lives. To continue the example above; we were hungry at the grocery store, bought a whole expensive cake, and carried it home, eating along the way. Now home and sick , we still feel responsible not to ‘waste’ the other half of the cake because it cost a lot and we don’t have any other groceries on hand. Behavioral economist Dan Ariely adds a fascinating twist to loss aversion in his book, Predictably Irrational. He writes that when factoring the costs of any exchange, you tend to focus more on what you may lose in the bargain than on what you stand to gain or the damage that might be done. 1/ Economics in One Lesson – the biggest mistake in economics This is the one. This is the biggest mistake in economics politicians make. Ready? Economics in One Lesson is an introductory book to free market economics written by Henry Hazlitt published in 1946. It is based on Frédéric Bastiat's essay Ce qu'on voit et ce qu'on ne voit pas (English: "What is Seen and What is Not Seen"). The "One Lesson" is stated in one sentence: The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups. This is the heart of the whole mater. We know what the politicians are looking at:
Jobs, jobs, jobs… votes votes votes
Symbols of success that can be pointed at, like convention centres
Low populist aggregators of support: sporting events, concerts, perks and parties of all sort
The line of talk is expansive. The problem is that’s where the thinking stops. It seems too much of a mental burden to get the politicians to also, as Hazlitt proposes, look at the longer effects of any act or policy; trace the consequences of that policy not merely for one group but for all groups. What Should Be Done – A Green New Deal The Future What’s a bright clean hopeful future worth? What’s it worth today? What’s it worth in the long run? You don’t need a number. It’s obvious it’s a lot. And it’s equally obvious that it’s bigger and better, and genuinely more fun, than buildings that take publicly held assets and convert them to private wealth , which is then extracted form the community. There’s only a dilemma if the government thinks only about its sunk costs with groupthink and a wilful blind eye to corporate maleficence, while imagining wrongly that our natural resources are without limit and that that limit is not long passed. If politicians looked at the longer and broader effects of their actions (and inactions) and traced the consequences of the policy not merely for one group but for all groups, then the solution would be quick. And Halifax would look very different. The sooner the failed idea is corrected, the sooner we can get to the future... for the workers, for the future of families in Halifax, and for all of Nova Scotia’s economic, environmental, and equitable health. To get to our shared goal of a better more prosperous future for all, a healthy happy Nova Scotia contributing to a peaceful world, will take education. A new kind of education. Education in the duties of citizens, officeholders of the highest degree tasked with bearding power and expecting more and better; critical thinking, methods for deciding who and what to believe and to what degree; education about the natural and spiritual world around us; education about the people of the world and how they can differ profoundly from us, which is a challenge and opportunity, not a threat; education for work, vocation, which is the main way most of us connect and relate to the world. Education is a long game. But it's the only game. When and where do we start? It's the same as it is for the forest. The best time to plant a tree is 50 years ago. The second best time is right now.