economics, equilibrium, generosity, generous, government, heartless, heartlessness, market equilibrium, minimum wage, oil, politicians, price ceilings, price floors, richard nixon, ronald reagan, supply and demand
The best place to find a laundry list of logical fallacies is pretty much the “market” for them…politics. Advertising is a close second, but politicians are very skilled at either making logical fallcies sound good, or, at minimum, engaging people so much they will overlook logical fallacies. Most of them I’ve just learned to live with. One that I can’t stand, however, is to ‘Appeal to Emotion’, in particular an ‘Appeal to Pity’. Mostly it’s because politicians can use it both before and after a bad piece of legislation.
Every politician does it, whether you’re a liberal or a conservative, although one side may do it far more on one issue than another. A politician will ram a piece of legislation onto the floor in the name of “helping the little guy”. It might be loaded with riders or target the wrong groups instead of the ones its designed to help, but more often than not it’s legislation based on what sounds good, not what actually is good. And if someone tries to point out that their idea is not going to solve the problem or make it worse (which, as anyone can tell you, is part and parcel for government), the accusation immediately is “you’re heartless!” “How dare you? You want to let people starve or let children get abused or murder our beloved elderly! You’re a demon! You’re a monster! You’re only obsessed with getting profit and helping out rich people! You horrid beast!”
And, nine times out of ten, the legislation that goes through ends up doing nothing or making everything worse.
Yet the ‘Appeal to Pity’ still isn’t invalidated. Now the politicians say: “Ok, maybe it didn’t work out the way we planned, but at least we had good intentions whereas our opponents were evil and cruel. We set out to help people! They wanted to let them rot! At least we did something!”
Question: You’re trying to buy a car and selecting between two models. One is standard but has a safety concern. The other one is a car that implemented a new safety feature to deal with that concern, but it ended up killing more people than the safety concern alone did. If the second car manufacturer comes up to you and says: “Hey, we at least tried to fix that feature! The other guy let it stay there and kill those people!”, does that make you more likely to buy their car over the first even though they ended up killing more people?
Politicians want to be graded on “intentions”, not results. They’re like grade schoolers. They wants “As for Effort”. And they can run on that. After all, politicians are somewhat in their “own little world”. They don’t have to be results-driven outside of how voters turn out on election day, and lots of things can be used to get that. As I illustrated in an earlier blog, all you have to do is make the other guy look worse than you by comparison and you can be the most brainless sack of blunt screwdrivers in the world and still get elected.
It’s effective, too, especially when turned on the voters. Politicians like to create false dichotomies that extend from this. Essentially, if you vote for the other guy, you don’t support a “generous, merciful” law that the politician in question supports. If you don’t support it, you’re for letting innocent people suffer. If you do that, you’re heartless. People don’t like to be heartless, as well they shouldn’t. All of us would like to be seen as kind and gentle and helping people who are genuinely down on their luck. The problem is that the politicians sell the voters on that feeling rather than any result that actually does anything about it. There could be a “less touchy-feely” option that actually does more to help people. Heck, the option being proposed might hurt people more. But that doesn’t matter, because that option makes people “feel like they’re generous” more than a “heartless” option does.
Nowhere is that more clear than how people think about economics.
(NOTE: For the following discussions, I am not telling you anything that an economics course on the college level won’t tell you. If you don’t believe me, enroll in one of those classes or read a textbook on economics and it will tell you the same thing. That said, if you’re of a “controlled market” mentality, you’re probably going to get upset more than once and try to claim this is all fake and baseless. Start looking up historical examples in that case. There are plenty that I won’t touch on here.)
Economics may seem to be fairly abstract and cut-and-dry, but proper economics is also a science of psychology in and of itself. In truth, I consider it better than most branches of psychology, because a lot of psychology has to deal with theories and how they believe people should behave. Economics, on the other hand, deals with how people will behave. It ignores views of the world being an ideal place or theories about states of nature and social contracts (like many utopian experiments, many of which ended in utter failure, try to do) and concentrates simply on what people will actually do. That makes it a pragmatic science. And people generally don’t like pragmatism. Taken to the total extreme, pragmatism abandons all morals and is indeed nightmarish. Yet a healthy dose of it alone forces people to accept things about human nature than might be scary. Nevertheless, if one doesn’t “shy away” from it because of this but “embraces” it, it can bring about better change. What seems to be a selfish or “heartless” option can actually bring about a result that would far exceed that of a more “generous” option.
As a brief example/aside, there is the term: “greed is good”. That phrase is a bit misleading due to being too general, but it’s true. That outrages a lot of people and immediately causes their minds to make a snap judgment. When they hear “greed”, they picture Ebenezer Scrooge sitting before a towering set of gold coins at his desk counting it out by the thousands while Tiny Tim and the rest of London stands in rags in the snow slowly dying of poverty. Naturally, that’s not “good”. Totally unrestrained greed or even only marginally unrestrained greed isn’t a good thing. Naturally, it’s never good if a person is constantly coveting more and more and is given the freedom to take as much as he or she wants from everyone else. But in the sense of defining greed as the natural inclination for a person in business to want to make more money (Which is perfectly natural, logical, and proper, no matter how much people want to deny it. Nobody starts a business with the idea they aren’t going to make money and profits. If they do…they don’t last long.), then yes…it can be a very powerful positive force.
Back in the 1800s when England was in the business of transporting large numbers of inmates to penal colonies, there was a market for prisoner transport ships. Conditions on those ships were horrendous. People died frequently of inadequate sanitation and nutrition. It was inhumane and ghastly even to aloof politicians. There were numerous efforts to improve this. Some were appealing to mercy through more charitable organizations and moral imperatives to enact change. Some were more legislative and designed to punish ship companies that neglected their inmates. But whether the attempt to curb the act was through public outcry, charitable work, or government action, they all largely failed.
Finally, a new regulation was put into effect: ship captains would no longer be paid on the number of inmates who went into the boat, but rather the ones who exited it at the penal colonies.
Not surprisingly, conditions dramatically improved in less than a month.
Where morals and the law had failed to enact a positive change, greed had. The problem was no longer something external to the business but something that impacted the “bottom line”. The business either had to better their conditions or lose money. By exploiting the “greed” of the people who ran the transport ships, a positive social change came about. Hence, “greed” was “good” in this situation.
Moving back to the topic at hand, namely why the “generous” solution is not always the “best” one, people must understand that the science of economics is one that only allows for emotion in a very limited scope. The rest of the time, it has to be practical. Trying to not be practical, to assume that people will always act in a certain positive fashion, is not only immature…it’s dangerous.
There are many examples I can use to point out where a politician had a choice between going with established economic science or doing the solution that “made everyone feel good”. However, I’ll focus on one in particular that’s important to “knock out” of people’s mentalities, because in spite of one of the best examples in American history of how generosity makes everyone miserable occurring not too long ago, people still seem to cling so hard to “not being heartless” that they’re more than willing to make the mistake again. That’s the example of “price ceilings”.
“Price ceilings”, like many half-baked ideas cooked up by politicians, is an idea that “looks great on paper but God help you if you put it into practice”. As one of my old high school teachers would say, it’s the kind of idea a bunch of people would toss about after getting drunk in a bar about how great it would be without ever honestly thinking it would be a good idea. It’s quite simple…you can’t charge more for a good than a certain amount. The idea is to make a necessary good (such as food or fuel) affordable for everyone, including people with low income. Great idea right?
Only one problem. It completely ignores a little something called “Supply and Demand”. It’s hard to explain Supply and Demand briefly (even in the general sense) without figures, but I’ll do my best to give an overview here.
Picture an XY coordinate plot where X is the amount of a good that exists while Y is the price of the good. In this example, let’s say the good is oil, because that’s a fairly good one to use if you want to be simple in explaining the model. There are two curves here.
The Supply curve represents how much it costs to produce a barrel of oil. And no, oil cannot always be produced for the same price. On the low end, like the $1 a barrel range, is oil that’s not very crude and in easy-to-access wells. In the mid-end is $10 a barrel oil, which requires a bit more refining and pumping from the ground. On the high end is $100 a barrel oil, which would require new exploration and drilling to be harvested. IMPORTANT NOTE: These dollar figures are NOT the prices the consumer sees. Rather, they represent how much it costs the people selling the oil to produce a barrel of it. This curve takes the shape of a curving slope, where the producers will only put out a small quantity of the good if they only produce the $1 a barrel amount, but a high quantity if they spend up to $100 a barrel producing it.
The Demand curve represents how much people are willing to pay for a barrel of oil. Consider the price of a gallon of gasoline right now. What if the price was $10 a gallon? Much fewer people would be driving and buying gas. What if the price was 10 cents a gallon? Everyone would be planning road trips over flying. This illustrates a good point. There are a large number of people (car drivers, the military, and companies that include petroleum-based additives to their products) who would be willing to pay $1 a barrel for oil. There are less who are willing to pay $10 a barrel. Say, the companies that use petroleum-based additives decide to change to a different brand at this point to save money. There are even less who are willing to pay $100 a barrel. Only the military is left here, because they always need oil in a situation where the nation’s defense requires them to get vehicles into action. Hence, the demand curve is the opposite from the supply. When the quantity available is low, only the people who will pay the most for it will demand it. When the quanity available is high, everyone, including those who will pay the least, will demand it.
These two graphs represent competing interests. From the perspective of the producer, they want to only produce enough product to where they can meet the demands of the highest number of consumers for the cheapest production cost. From the perspective of the consumer, they only want to consume enough product to where they can get the highest number or producers to give their good for the cheapest price they will pay for it. The result is the price is set where the two graphs intersect, known as the “equilibrium” point. This also defines how prices will change.
1. If people suddenly want to start buying more oil and the producers don’t respond, there is now a shortage. The demand curve moves to the right, causing the equilibrium point to move up the supply curve and the price of the good to increase.
2. If people start using oil less and the producers don’t respond, there is now a surplus. The demand curve moves to the left, causing the equilibrium point to move down the supply curve and the price of the good to decrease.
3. If people don’t change in their desire for oil but the producers make more, this is also a surplus. The supply curve moves to the right, causing the equilibrium point to move down the demand curve and the price of the good to decrease.
4. If people don’t change in their desire for oil but the producers make less, this is also a shortage. The supply curve moves to the left, causing the equilibrium point to move up the demand surve and the price of the good to increase.
It’s important to realize that this model assumes the conditions of free-market capitalism, but when those conditions are true or even near-true, it holds very well. Just like a true equilibrium, surpluses and shortages never last. If there’s a surplus, consumers immediately start buying more, increasing demand and bringing it back to the original equilibrium. If there’s a shortage, producers immediately start making more, increasing supply and bringing it back to the original equilibrium.
This is actually very important because it utilizes the consumer’s desire to have a good and the producer’s desire to make money from sales appropriately, which keeps everything in a “harmonious balance”. What kind of harmonious balance? Well…the best way to illustrate that is what happens when the balance is disrupted…such as by a politician trying to “not be heartless”.
Say what you want about Richard Nixon…the biggest blunder he really made as president was not Watergate but in putting price ceilings on the price of oil. It was a disaster. What it did, in effect, was create an artificial equilibrium point well below the actual equilibrium point. On the supply side, producers were able to produce more oil but the demand of it was set artificially low, causing them to produce less. On the demand side, consumers were willing to pay more for oil but the supply of it was set artificially low, causing consumption to overshoot supply.
The result caused fuel lines and oil shortages all over the country. This was not due to OPEC’s new creation and embargos. It was due to messing with supply and demand. What happened normally was that if demand went up in an area of the country where people were driving more or winter came on and they needed more heating oil, the people would be willing to pay more and the oil companies, in response, would invest more money in producing more to maximize supply to those areas that paid more until it hit equilibrium again. But since demand was set low, it never made sense for an oil company to produce more oil to those areas. Greater demand was “invisible” to them and, furthermore, it didn’t matter how much the people wanted oil in those areas when an oil company would make the same amount selling to an area that had more than enough and demand was lower.
There were more problems besides rationing and shortages. Some trucking companies resorted to violence when strikes erupted as a result of oil rationing. In some cases, guns and bombs were implemented by strikers against non-strikers. Furthermore, although the shortages of this period began a push for more efficiency and alternative fuel sources, it wasn’t as much as the modern day because oil was not growing too expensive, just in short supply. One of the things that pushes the demand curve to the left in the supply and demand model is if an alternative is discovered. But since the equilbrium point was already set low, discovering alternatives to oil were not terribly profitable and couldn’t push the “natural” equilibrium lower.
Ronald Reagan was the one who eventually eliminated the price controls. And just like what would have happened today, people were outraged at him, thinking he was in bed with the oil companies and trying to get them to charge whatever they wanted to the poor common folk. In other words…that Reagan was being “heartless”. And truth be told, prices did rise after this happened, and quite a bit, but only until equilibrium was restored. Then they went back down below the price level before the ceilings were put in place. Say what you want about Reagan…that was a smart move on his part. But yes, it seemed “heartless” at the time.
“But wait! The price of gas was higher than ever! It used to be only 10 cents a gallon!”
Yeah…there’s a little thing going on over a period of decades called “inflation”. What was also going up over that time period was the amount of money people brought home as well as the price of everything else. The cheapest gasoline has ever been when adjusted for inflation was actually during the Clinton years (1998 to be precise). And yes, due to eliminating price ceilings, Reagan indeed saw some of the highest gas prices ever. But he also saw one of the sharpest drops too and, like I said, gas was quite cheap by the time he was working on his second term.
Don’t believe me?
“Wait a minute! Price floors are nothing more than the flip side of price ceilings, and we’ve had a price floor in action for years (the minimum wage) and haven’t had any problems!”
True. A price floor is indeed the flip side of a price ceiling. The only difference is you set a price from being set too low rather than too high. And yes…the labor that a minimum wage worker performs is itself a “good” in terms of economics, so wage itself is a “price”. However, minimum wages in this country are already set very close to the equilbrium point. There are very few employers who would pay less than the minimum wage if they could because no one would be able to work for that amount and there is “no supply” for that level. (At least in terms of native citizens. Perhaps in migrant workers, but that’s a whole other issue in and of itself that I won’t touch here.) Also, in most businesses, workers who enter at the minimum wage start earning raises relatively quickly, moving them off of the “artificial equilbirum point”.
“But supply and demand is just a theory! It doesn’t really exist!”
It’s true that the law of supply and demand makes certain assumptions. But even if there weren’t nobel prize winning economists and years of data supporting the existence of the model (there are), history has proven that people who try to break the law of supply and demand get “broken on it”. The oil prices was one example. Airline ticket prices are another. (Why was Southwest Airlines able to boom? It started off as an airline that only operated within the state of Texas, making it exempt from the price ceilings Pan-Am, TWA, and all the others were under.) Housing prices in big cities are yet another. (Consider how much urban decay has progressed.) All a result of trying to be “generous” by setting a price ceiling.
In conclusion, this is not a recommendation for total “laissez faire” economics, because the truth is if businesses (or anyone, for that matter) are not held to certain ethical standards, they can and will abuse their power. What this is designed to show you is that an accusation of “heartlessness” on the part of a politician is usually crap that shouldn’t be taken to heart. Rather than letting a politician appeal to your emotions, it would be far better to look to results and similar implementations. After all…that’s what history is recorded for. Not to let us pass Civics tests only but to hopefully help us learn from our mistakes.
Finally, one should not subscribe to the mentality that the only way things can improve for one group is if things get worse for another group, as if there is a fixed amount of prosperity in the world that we need to fight over. There are indeed solutions that exist in which “everybody wins”.