To listen to some people, you’d think that America had been run by economists — and specifically free-market economists — for the last fifty years or so. Of course, this isn’t really true, as any glance at the ever-climbing nature of federal spending or regulations would show you, but whatever influence economists might have had is being jettisoned in favor of what my late friend, the British economist David Henderson, called “Do It Yourself Economics.”
Henderson’s concept was developed during his time at Her Majesty’s Treasury and at the Organization for Economic Cooperation and Development, where he was Chief Economist, after keen observation of the actions of political actors across the developed world. He describes “Do It Yourself Economics” (DIYE) as “economic policies [that] have been influenced or decided by firmly held intuitive economic ideas and beliefs which owe little or nothing to economic textbooks or treatises, or to the evidence of economic history.”
He also pointed out that the “leading ideas and beliefs that go to make up DIYE are sincerely held, and voiced with conviction, by political leaders, top civil servants, chief executives of corporations, general secretaries of trade unions, well known journalists and commentators, eminent religious persons, senior judges, and established professors across the whole range of academic disciplines (not excluding economics itself). That is why they have to be taken seriously as an influence on events.” In other words, DIYE is like an endemic intellectual disease. One must ensure regular inoculation against its spread.
That’s because DIYE has a long record of leading good intentions into bad outcomes. Henderson gives as examples that profit-seeking is questionable, that the state has a role in any cross-border transaction, and that goods and services can be ranked in order of importance. Each of these beliefs is contradicted by economic thinking, yet their persistence gives rein to interventionist governments and to restrictions on freedom. What characterizes them is a reliance on central direction and even collectivism.
What free market economists might actually have done well over the past few decades is hold back some of the worst excesses of this tendency for a while. Adam Smith told us that the economic world is governed by largely unseen forces like incentives, prices, and information that rarely coincide with our instincts, and recognizing those forces might have helped put a brake on instinctive politics. Yet today those forces are dismissed as inconvenient, and intuition is heralded over analysis.
We see this most obviously in the return of mercantilist thinking. We are told by no less a figure than the President of the United States that a trade deficit is a bad thing and represents unfairness, and that reducing that deficit through the tool of tariffs will bring back jobs. Many, if not most, people agree with this.
Yet economic thinking tells us otherwise. It tells us that we get substantial value for that deficit, that tariffs will do little to reduce deficits and may indeed increase them, and that tariffs kill jobs as well as create them. The objections of economists to the administration’s tariff policies are, however, dismissed as “free market fundamentalism” or worse.
While the reaction of markets to the policies seems to have induced continuous pauses and resets in the policy, the direction of the policy remains towards much higher tariffs, despite predictions of price rises, job losses, and supply shortages. Although DIYE could never be properly described as dogmatic (it is too instinctual for that), it does seem that blind adherence to it in this case veers closer to fundamentalism than any careful warnings of empirical economic analysts.
Yet the problem is not confined to the administration. In New York, a prominent mayoral candidate is calling for rent control and freezes. The DIYE idea is that this will make housing more affordable for everyone and prevent displacement of poor households from their neighborhoods. Yet nearly all economists, from left to right, agree that rent control leads to housing shortages, reduces investment in maintenance, hurts newcomers, and makes housing less affordable in the long run. One Swedish socialist economist once said, “In many cases rent control appears to be the most efficient technique presently known to destroy a city except for bombing.”
Just as with tariffs, the careful collection of evidence on the effects of rent control and its analysis are quickly forgotten when a prominent, charismatic individual emerges to champion the DIYE idea. The ill effects of the policy are easily predicted, yet economists share the pain of Cassandra when they make those predictions — always right, always disbelieved.
We do not want for examples. Inflation has been blamed by politicians of both parties on corporate greed — and price controls are the DIYE solution. Yet economists know that inflation is caused by monetary policy, as too much money chases too few goods. Price controls lead to shortages instead. We learned this painfully in the 1970s, yet the lesson is already forgotten.
In this case, the DIYE diagnosis of “greedflation” doesn’t even stand up to a moment’s thought. If prices rising are the result of corporate greed, aren’t falling prices the result of corporate generosity? Economic pushback does not have to include complex econometric analysis. Simply applying the economic way of thinking can be enough to cause those tempted by DIYE to think again.
Another bipartisan example is the idea of industrial policy — that requirements of domestic sourcing and government-led reshoring can lead to more jobs, higher wages, and prosperity for all. This can be portrayed as a patriotic policy, a pro-labor policy, or even a pro-environment policy; all three were present in the glut of spending bills at the end of the Biden administration.
Yet economics again should have given pause. These measures, whether “buy American!” or a “green new deal,” raise costs, reduce competitiveness, and, like tariffs, invite retaliation abroad. The economic literature finds government industrial policy to be largely inefficient. When we learned that lesson in the last century, rules were put in place to require rigorous cost-benefit analysis and the like, but over time those were diluted and then eventually ignored or dropped entirely.
Back on the left, another example from the Biden administration was student debt cancellation. The DIYE idea was that college graduates were earning decent wages but this was all going into paying off student debt, so canceling it would free up their resources to boost economic growth, to the benefit of all.
Economic thinking said otherwise. Cancellation would be a classic example of dispersed costs and concentrated benefits. The people who benefited were those already doing reasonably well, while those without college degrees (or those who had them but had paid off debt in accordance with the terms they agreed to) would see no benefit. As an economic stimulus, it would be poorly targeted.
DIYE remains influential because it conforms closely to political instincts and moral intuitions. Moreover, its tenets are sincerely held, often by people of high status whose affirmation gives the ideas an authority (or even sanctity, when professed by religious leaders) that is hard to counter. Thus, economists might be dismissed as bean counters, people who know “the price of everything and the value of nothing,” or even followers of “the dismal science.”
In a polarized and populist climate, the ideas of DIYE often provide a more powerful narrative than textbook economics. This makes them even more potent and, respectively, harder to counter.
Economists must therefore have their own stories to deploy alongside their models and theories. For every rust belt town where a factory has closed, they must point to a Spartanburg, South Carolina, where trade has opened new opportunities. For every family staying in their home thanks to a rent cap, they should point to the unseen family kept out of the neighborhood, or the apartment closed for rent as unaffordable to the landlord.
Ideally, these stories should appeal to the same values that the DIYE proponent purports to serve. A critique of green industrial policy will do no good if the critic seems not to care about the environment; an appeal to halt tariff policy will have no appeal if it fails to acknowledge the values of patriotism that motivate the mercantilist.
Sometimes, stopping a DIYE policy once will be impossible. But stopping it from happening again is more within reach. Even just delaying a harmful program by injecting a quantum of doubt can be valuable. As Ronald Coase said, an economist who “is able to postpone by a week a government program which wastes $100 million a year (what I consider a modest success) has, by his action, earned his salary for the whole of his life.” In the face of the DIYE onslaught, then, free market economists may need to adopt a Fabian approach. This may disappoint those of us who think of ourselves as radicals or revolutionaries, but it may be the surest way to win this battle for freedom.