Don Boudreaux, over at Cafe Hayek, drew my attention to an essay by Jeff Madrick of the Roosevelt Institute over at The American Prospect. There are many, many things wrong with this essay. Don touched on one aspect. I’m sure others will as well. I might sometime in the future. But for right now, I’d like to focus on the overall piece and use it as a lesson on how not to write and think.
Mr. Madrick commits a logical sin right off the bat. His first sentence of his first paragraph is “Despite the practical failures of free-market economics, too many mainstream economists have continued to embrace simplistic ideas about how the economy works.” This is a logical fallacy called “begging the question,” in other words, assuming facts not in evidence. He continues to perpetuate this fallacy throughout the first paragraph:
Despite the practical failures of free-market economics, too many mainstream economists have continued to embrace simplistic ideas about how the economy works. Such ideas are often rooted more in ideology than in evidence. These beliefs and the policies that follow led directly to the 2008 financial crisis and the Great Recession. They also centrally contributed to the nation’s subpar performance beginning in the late 1970s, and to our widening inequality. They continue to endanger America’s economic health.
None of this is true (in fact, there is strong evidence it is not). Madrick merely assumes it is, and proceeds from this assumption.
Then he attempts to “discredit” free-market economics by unleashing a mob of straw-men. A straw-man is when an opponent, in order to make his case look better, creates false arguments and then attacks those rather than what his opponents believe. So, let’s take a look at some of his straw-men:
1) “The Invisible Hand. The premise of Adam Smith’s invisible hand is that buyers and sellers, free of any government interference and merely following their self-interest, will arrive at an optimal distribution of goods and services at the “right” price, as if guided by an unseen hand.” Nope. Not at all. This is not what the invisible hand metaphor (and I stress this is a metaphor, as apparently Madrick doesn’t understand that). Rather, what the invisible hand metaphor talks about is how, without any central planner, an order emerges.
2) “People Get What They Deserve.” Again, nope. Trade is about exchanging value. Value is subjective. It’s not about “getting what they deserve.” It’s about getting what they agree to.
3) “Say’s Law…[i]n shortened form, it argues that supply creates its own demand. In other words, if you make it, people will buy it.” Absolutely not. Not even close. What Say’s Law, in shortened form, actually is is that, before one can trade, one must have something to trade away; in other words, one must produce in order to consume. Says Law does not guarantee anyone will buy what you are selling.
4) “Financial Markets Are Efficient.” Again, nope.
5) “Inflation Targeting and Price Stability Are Holy.” This one is laughable. Up until this point, Madrick insists free market economists oppose intervention (which many do). Now he’s saying it’s a “central proposition?”
6) “ More Cross-Border Trade Is Always Good.” This one isn’t a straw-man, per se, but is just factually incorrect. First off, he claims free trade is “One-size-fits-all policies should be adopted everywhere, no matter the developmental stage, educational attainment, or culture of a nation.” This, of course, is the exact opposite of what free trade actually is. Free trade allows individuals to pick and choose what goods/service/and capital they buy based on their developmental stage, educational attainment, or culture of a nation.
He then claims “But the Washington Consensus badly failed in the 1997 East Asian financial crisis.” This is also factually false. The countries that traded more and were more industrialized fared better than those who were not. (Also, let’s not forget that the cause of the crisis was government default and fixed currency exchange rates, decidedly non-free market things).
Then he makes the head-scratching claim: “Moreover, widespread assertions that free-market reforms led to enormous reductions in global poverty foundered on a hard fact: Most of the reduction occurred in China, and to a lesser degree in India—countries that did not adopt the Washington Consensus.” They may not have adopted the Washington Consensus, but they sure as heck did trade more (which, I remind Mr. Madrick, was the original topic of this paragraph. His sleight of hand to attack the Washington Consensus rather than trade was not lost upon us).
7) Markets Invariably Work Better than Governments. He doesn’t even try to disprove this one. In fact, his whole paragraph comes off as confused and contradictory. But, of course, this is also a straw-man. Markets can fail. They do. But government intervention is not guaranteed to make it any better; it possibly good, but it is highly unlikely given the knowledge problem.
The rest of Mr. Madrick’s essay is based off of these baseless claims and is largely speculative. Unfortunately, I am running out of time and energy so I’ll skip those for now suffice to say that if the reasoning is poor, the conclusions will likely be poor, too.
So, in conclusion, Mr. Madrick did a great service to academic thought. Just not the service he thought he did.