Donald J. Boudreaux: Economists and the public
Economists have a knack for rubbing people the wrong way. While the irritation that we economists inflict on non-economists is (mostly) unintentional, it’s also real. Yet I’m here to beg non-economists for their understanding. Many of the economic insights that cause irritation are also deeply important.
Perhaps the single most irritating habit of us economists is to persistently insist that nothing is free. No matter how splendid some government program is, its splendor alone is insufficient to justify it. To determine if the program is truly worthwhile requires that the benefits of the program be weighed against its costs. If the costs outweigh the benefits, the program isn’t worthwhile.
Economists’ insistence on such cost-benefit comparisons is a second source of irritation to non-economists. Non-economists too often suppose that the recommendation that costs be taken into consideration is a heartless means of obstructing government’s effort to do good. But our recommendation is quite the opposite. After all, the costs of any program are the benefits that are sacrificed to carry out that program.
And so when we economists counsel that government should implement only programs whose benefits outweigh their costs, we do nothing more than counsel that government act in ways that are most beneficial to society.
We economists also startle non-economists when we share with them our often-unique perspectives on the meaning and application of everyday terms. Consider the word “regulation.” I routinely tell people that the so-called “deregulation” of the late 1970s and 1980s was really a policy of much stricter regulation.
Economic competition is the most reliable and incorruptible form of regulation. If in free markets that are unsullied by government favoritism an airline mistreats its passengers or a bank is careless with its customers’ deposits, the market punishes these firms with losses and, if they don’t mend their ways, with bankruptcy. In other words, when markets are free, the ability of consumers to withhold their spending is a source of what I believe to be the most strict means of regulation.
In contrast, so-called regulation by government has the opposite effect. Although sold as government efforts to ensure that businesses better serve the public, far too many government “regulations” are really devious schemes to give politically powerful industry incumbents protection against competition from upstart entrepreneurs and politically weak firms.
Government “regulation” of U.S. airlines during the mid-20th century protected incumbent carriers from having to compete against new entrants by blocking entry into that industry. Government also protected airlines from having to compete against each other. It did so by setting high airfares that no carrier was allowed to undercut. This arrangement was sweet for U.S. airlines but not so much for the American public, for whom government-set airfares were too high to enable ordinary Americans to fly on a regular basis.
But following the late-1970s rollback of this government intervention into the commercial airline business, airfares fell dramatically while safety continued to improve. So-called airline “deregulation” subjected air carriers to the far more stringent regulation of competitive market forces.
Donald J. Boudreaux is a professor of economics and Getchell Chair at George Mason University in Fairfax, Va. His column appears twice monthly.