I’ve reviewed two of Otteson’s books before: The End of Socialism (Spring 2016) and Honorable Business (Fall 2019). Both are stellar and well worth reading. The same is true of Seven Deadly Economic Sins, which would be a fine addition to an economics or philosophy course syllabus or a useful standalone text for a reading group or book club. I’ve practically ruined my copy with marginal notes, and I suspect I’m not the only reader to do so.
Seven Deadly Economic Sins is written at a level accessible to students, educated laypeople, and non-economists/philosophers interested in seeing what Smith’s intellectual descendants have to say about the world. Otteson, a leading Smith scholar, is an ideal guide.
Seven fallacies / Where many economists try to distance themselves from ethical assumptions and try to describe “policy implications” neutrally, Otteson (a trained philosopher) evaluates the “seven deadly economic sins” in light of his conviction that responsible adults are “equal moral agents” who deserve the liberty and dignity to make their own choices. We don’t honor their moral equality when we presume to make economic choices for them, and as Otteson shows, that presumption is at the root of many “obstacles to prosperity and happiness.”
He takes readers through seven fallacies: the Wealth Is Zero-Sum Fallacy, the Good Is Good Enough Fallacy, the Great Mind Fallacy, the Progress Is Inevitable Fallacy, the Economics Is Amoral Fallacy, the We Should Be Equal Fallacy, and the Markets Are Perfect Fallacy. He finishes with a bonus eighth fallacy in his conclusion, which he calls the I Am the World Fallacy. These, he argues, corrupt our souls and destroy our world.
The first of these, the Wealth Is Zero-Sum Fallacy, is probably the most important, the most misunderstood, and the most understandable in light of where we’ve been as a species. It’s most understandable because, for almost all of history, wealth was zero-sum. Rulers and nobles amassed great fortunes by conquering and exploiting people. About two and a half centuries ago, however, people started getting richer on a much larger scale by innovating (coming up with ways to do more things with fewer resources) and by exchanging (getting dinner from the butcher, the baker, and the brewer not by demanding it or simply taking it, but by giving them something they want in exchange). Its historical ubiquity means it is likely the most common misunderstanding, and the importance of combating it comes from the fact that over the long run, economic growth has been and will continue to be the greatest anti-poverty force the world has ever seen. As Nobel economics laureate Robert Lucas has explained, it’s a serious mistake to focus on income distribution when income creation over time is what matters.
Otteson complements economists’ analysis of the free-market cornucopia by asking whether those who might be made worse off by any change to the status quo should have a right to block that change or to demand compensation for it. If you go to the locally owned Tweek’s coffee shop every morning but then start patronizing the Harbucks chain when it opens next door, do you owe Mr. Tweek anything? After all, competition from Harbucks is a pretty serious blow to his future prospects.
Otteson explains that the answer is “no,” using a vivid thought experiment. He asks readers to imagine that Jack and Jill are in love. Jack goes to buy an engagement ring. When he gets back, he discovers that Jill has fallen in love with and married Joe. It’s a devastating blow to Jack, and while it would be virtuous for us to give him a shoulder to cry on, we don’t have the right to dissolve Jill and Joe’s marriage or demand that Jill and Joe compensate Jack.
The recently abandoned Tweek’s coffee is like Jack: their friends should help the Tweek family during what are sure to be hard times, but they should not forcibly prevent other people from going to Harbucks or demand that those people compensate Mr. Tweek because they have not injured him. Otteson puts it this way:
But disappointment at not receiving a benefit is not a cost or injury, since the disappointed party did not actually possess anything that has now been lost; they only hoped to acquire some additional new thing, and now they will have to look elsewhere to acquire it.
Compensation for people “hurt” by a policy might be politically necessary if those people are strong enough politically, but it’s not morally required.
What is worthwhile? / The Good Is Good Enough Fallacy concerns the belief that something is worthwhile if it provides some cherished benefit. This fallacy is behind the oft-stated belief that saving a life justifies any cost. This ignores the fact that paying that cost means lives or other valued things are lost elsewhere. We must count all the costs and benefits to all groups, not just the benefits to the people who are easy to see. Of course, a piece of special interest legislation benefits a special interest, just like a shattered window creates an opportunity for a glazier.
Once again, Otteson helps us understand by using a vivid thought experiment: Imagine a Mars rover discovers a new, previously unknown compound that, as far as we know, only exists on Mars. Suppose further that we somehow discover that it can cure a rare disease. Getting enough of the compound from Mars to Earth to save one life would likely cost many, many billions of dollars. For comparison, the U.S. Environmental Protection Agency’s Value of a Statistical Life is about $10 million, which suggests that the “one life” we’d save with the Mars medical mission would cost a great many other lives.
Otteson next takes on the Great Mind Fallacy, which asserts that important human problems should be addressed by a central group of experts. He explains, in light of Smith’s analysis of a person’s knowledge of her “local situation” that cannot be known by an outside observer, that there is no “Great Mind” out there—or Great Collection of Minds—that can even articulate a social problem in its entirety, much less solve it.
And so on. Otteson goes on to explain that progress is not inevitable, that economics rests on important moral foundations, and that people’s enthusiasm for “equality” doesn’t survive careful scrutiny because it’s not always clear what we mean by “equality.” As Friedrich Hayek argued, creating economic “equality” requires creating political inequality. Otteson explains throughout the book that people have created great fortunes in commercial societies not by taking and raiding but by making and trading. Finally, markets are not perfect and tend not to be the way tight communities (like families) organize themselves, but they can be relied on to mediate relations between strangers when rights are well-specified and clearly enforced.
Beyond ourselves / Otteson leaves us with a bonus eighth fallacy, which he calls the I Am the World Fallacy. It’s the egoistic belief that one’s own value system is superior to all others. Otteson’s corrective is a simple piece of advice: get over yourself. He quotes Smith: “Though every man may, according to the proverb, be the whole world to himself, to the rest of mankind his is a most insignificant part of it.” You are not a god burdened with glorious purpose, and no matter how wise or virtuous you are, it is not your prerogative to override others’ moral agency and rule them. You are not more equal than others, no matter how much you might think otherwise.
Otteson closes with a postscript:
Insofar as we are concerned, then, with human betterment, not only our own but that of others as well, these basic principles of economics are vital. We should learn them, incorporate them into our worldviews, and teach them to our children. Our futures, and theirs, may depend on it.
Joseph Schumpeter was surely right when he wrote that “the typical citizen drops down to a lower level of mental performance as soon as he enters the political field.” (If you disagree, spend five minutes on any social media platform or look up campaign ads on YouTube.) If we’re going to mitigate this as much as possible, we would do well to follow Otteson’s advice and incorporate the basic principles he explains into our worldviews.
