Philosopher Daniel Dennett recently passed away. His research focused on topics like consciousness and the philosophy of mind, but his ideas can be applied to other areas of life, including economics. There is one idea he particularly mentioned in his book: Intuition Pump and other tools for thinking The emphasis here is on what Dennett calls “profundity.”
Dennett describes “profoundness” as a comment that seems meaningful at first glance but is actually marred by vagueness. There are two different ways to interpret this statement. In one interpretation, the statement makes a meaningful and substantive claim, but the claim is simply false. In the other interpretation, the claim is true, but only a self-evident truth.
This is similar to the “mott and bailey” fallacy proposed by Scott Alexander. Explained in front:
So the Mott and Bailey principle is: make a bold, controversial statement. And then when someone challenges you, you retreat to an obvious, uncontroversial statement and say that’s what you wanted to say all along. So you’re obviously right and the person who challenged you is a fool. And then when the debate is over, you retreat to your bold, controversial statement.
Both ideas are similar in that they refer to claims that are open to interpretation, but there are some differences. In Mott and Bailey, the bold statement is not necessarily false; it’s just that the bold claim that is actually presented is not defended. Mott and Bailey is a clever argumentative tactic to avoid defending a claim. As Dennett explained, deepness is more like a trick that we can play on ourselves. Deepness can muddle our thinking when we unconsciously transfer the truth value of a trivial interpretation to a substantive interpretation.
That being said, here are two examples of deep ideas commonly found in economics: first, the idea that imports reduce GDP, and second, the idea that rising prices are the result of greed.
In the first instance, I am generous enough to admit that the claim may be trivially true. As Pierre Lemieux argues, It is called “Accounting in the Narrow Sense” – If we look at the accounting identity for GDP, we see that GDP = G + C + I + X – M. This means that GDP equals government spending, consumption spending, investment spending, exports, and imports. Exports add to GDP, but imports subtract from GDP. So doesn’t that clearly mean that imports reduce GDP?
No, that’s not the case. I’ve often complained that many economic misunderstandings arise because economists are bad at naming concepts.Public Goods!), in this case I must absolve myself from any criticism of the profession. What GDP tells you is exactly what it sounds like: Gross Domestic Product. That is, wait, Produced domesticImports, by definition, are do not have domestically produced. Imports are subtracted from the GDP calculation identity, of course, because GDP is measured by definition to exclude imports. The subtraction is to prevent double counting. You recently spent $5 on avocados imported from Mexico. That $5 appears in the C part of the identity above, and was $5 spent. But because the avocados were not produced domestically, that $5 is subtracted from the GDP calculation as M. This does not mean that GDP “fell” by $5 in any sense; it just means that that $5 spent was not part of GDP as defined.
The essential point made by those who argue that “imports reduce GDP” is the idea that increasing exports and decreasing imports would raise the American standard of living. This is completely wrong. Exports (again, by definition) are the products that American workers expend their time, money, and resources to produce, and that foreigners enjoy the consumption benefits from. Consumption is the benefit, and production is the cost of obtaining that benefit. (Indeed, Adam Smith It has been wisely said that “Consumption is the sole aim and end of all production.” Exports are those things for which the nation bears the cost of production but for which it receives no consumption benefits. Exports are (by definition) part of GDP because they are produced domestically, but this is quite different from saying that increasing exports and decreasing imports will raise the standard of living or make the nation better off in any meaningful way. Another way to show this is to rearrange the GDP accounting identity. Suppose we want to live in a society where the nation’s citizens benefit from high levels of consumption and investment. C + I = GDP – G – X + M. So more exports and less imports means lower levels of consumption and investment, and more imports and less exports means higher levels of consumption and investment.
The second profound point – that greed explains price increases – can be interpreted as trivially true. Producers want to make as much money as possible, so they would prefer to sell at a higher price to make more money. But while this claim is often brought up to explain price spikes and the like, in this more substantive context, it is demonstrably false. The desire to make more money rather than less is a constant. Changes in price are a variable. Explaining changes in outcomes by appealing to factors that have not changed is an explanatory dead end. For example, just recently the price of eggs in the United States has skyrocketed. Can “greed” explain this price increase? Trivially, but not substantively. If egg producers once sold eggs for $3 a dozen and then raised the price to $6 a dozen, how does “greed” explain the price increase? changeIf greed is the reason they sell for $6 a dozen, why were they selling for $3 a dozen in the first place? Did egg producers have an altruistic motive at a previous time, and then suddenly they all became greedy at the same time, and then suddenly they weren’t greedy again? Economist Justin Wolfers once tweeted a pretty striking graph about egg prices:
If we apply the same reasoning consistently to attribute the spike in prices towards the end of the graph to “greed,” then the sharp drop that follows shortly thereafter also follows a large reduction in greed. Alternatively, rather than trying to explain the change by appeal to factors that didn’t change, we can try to explain it by appeal to other factors that did change as well, such as a change in supply and demand brought about by the spread of a avian disease that greatly reduced the supply of eggs in a short period of time.
These are some common examples of the economic abyss. If you have any, please share them in the comments.
