Economic Fallacies on the Left and Right

Barack Obama and Rick Santorum are equally confused when it comes to economics.


Rick Santorum and President Obama don't agree on much. But on this point they are in accord: Whatever they want, it will do wonders for the economy.

Last month Santorum, the Republican former senator from Pennsylvania, spoke at the 2014 March for Marriage, where he told a reporter for Townhall.com why gay marriage is wrong: "When we continue to see a decline in marriage and a redefinition of marriage, you get less marriage. You get families that aren't as strong, and as a result society generally, the economy suffers. …" When you have less marriage, he went on, "then society struggles and suffers economically. … So it's important for us to stand up for … what's best for the economy."

You don't often hear such a thick goulash of nonsense, at least not outside of a New Orleans drunk tank. When you let more people marry, you get less marriage? Might need to see the math on that.

Santorum's economic argument, meanwhile, defies gravity. It hovers in midair, with nothing whatsoever to hold it up. It might sound theoretically plausible—with enough imagination, anything could be said to affect the economy.

But empirically it is laughable. Economists still debate the effects of minimum wage hikes imposed many years ago—cases in which the variables are discrete and measureable. It is ludicrous to pretend anyone can divine the future economic effect of an amorphous social change, still much in progress, that touches upon everything from housing to tax collections.

And yet despite its gauziness—or, perhaps more accurately, because of it—the economy is the go-to argument for just about any topic under the sun.

In his State of the Union speech last year, Obama exhorted Congress to expand early childhood education. Why? Because he also had a bunch of plans to improve "manufacturing, energy, infrastructure, and housing"—but "none of it will matter unless we also equip our citizens with the skills and training to fill those jobs. And that has to start at the earliest possible age."

It does? Preschool doesn't usually include lessons on how to drive a forklift. But again, it sounds theoretically plausible that expanding early childhood education could someday boost the U.S. manufacturing sector. (And hey, just try to prove that it won't!)

Theoretically plausible, however, is far from empirically demonstrable. When it comes to cause and effect, the president could not make even a much smaller claim without spiraling off into fiction. "Every dollar we invest in high-quality early childhood education," he said, "can save more than seven dollars later on." This was pure gasbaggery.

The claim rested on a couple of decades-old studies about two highly intensive and expensive experiments whose benefits are still debated. The federal government's own studies of the Head Start program, meanwhile, have found it produced "little evidence of systematic differences." Still, a 700 percent return on investment sure sounds good, doesn't it?

You see claims like that all the time. Regarding the federal stimulus of Obama's first term, a writer for The Nation averred that "building a clean energy economy will create three times more jobs within the U.S. than would spending on our existing fossil fuel infrastructure." (He also called the claim "irrefutable.") Nancy Pelosi agrees: Investing in "a green economy" is vital for "a brighter and more prosperous future," she says.

Indeed, no discussion of green-energy policy is complete without copious assertions about how many jobs it will create and how much it will benefit the economy. Often those assertions are built on dubious assumptions (e.g., green jobs pay more) and often they ignore countervailing considerations (e.g., consumers who pay more for green energy will have less to spend elsewhere). Yet when, say, Solyndra promises to create hundreds or thousands of new jobs, environmentalists treat the self-serving claim with a pie-eyed credulity they never would apply to a claim from ExxonMobil.

A fundamental principle of economics is the concept of trade-offs: Everything carries a cost, even if it is only the cost of forgoing one opportunity to pursue another. Another basic notion is diminishing returns: A person caught in the rain finds one umbrella very useful. He finds a second umbrella less so. Yet somehow, miraculously, seemingly every government policy produces a net economic gain—and the more you spend on it, the bigger the gain will be.

High culture? According to a report by Americans for the Arts, the arts and culture industry "generates nearly $30 billion in revenue to local, state, and federal governments every year" even though government spends "less than $4 billion annually to support arts and culture—a spectacular 7:1 return on investment that would even thrill Wall Street veterans." Ergo, "leaders who care about community and economic development can feel good about choosing to invest in the arts." Well, there you go.

Government handouts to Hollywood? Virginia's Film Office claims that for every $1 the state gives to film companies, it collects $12 in return. Spending more on the Department of Labor? It will, says Rep. Rosa DeLauro (D-Conn.), "save money in the long run."

What about—oh, NASA? "Space is a $300 billion industry worldwide," said astrophysicist Neil deGrasse Tyson back in 2012, when he urged President Obama to double the agency's budget. "Innovation drives [the] economy."

Why give so much top billing to the bottom line? Well, Americans are pragmatic. They might not care about a particular endeavor by itself, but if you can show that it's good for business, they might agree to go along. The only trouble is that not everything can be good for business all the time.

The economic argument is also rather sad. There is more to life than dollars and cents, and it seems a little pusillanimous not to say so. Rick Santorum opposes gay marriage because he thinks it is vile and sinful—not because it supposedly harms the economy. (If a study could prove gay marriage helped the economy, would Santorum support it? Of course not.) Santorum thinks other people ought to think gay marriage is sinful, too. But preaching that it's bad for the economy isn't going to convince anyone of that.

Neil deGrasse Tyson believes in space exploration because of its glorious scientific promise—not because it might be good for Lockheed-Martin. Why not make the case for space on its own merits? We should educate children for their own benefit, not because of their potential future utility to us. People ought go to theaters and art galleries to gasp in wonder at artistic brilliance and beauty—not because of the multiplier effect.

That's the real irony of the ubiquitous economic argument. Worthwhile causes speak for themselves. Pitching them as little more than economic stimuli really just sells them short.