The Good Economist vs.

The Bad Economist

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The Good Economist vs. The Bad Economist

12/26/2019Yazid Suleiman

Frederic Bastiat made a clear distnction between the good economist and the
bad economist. For him, the good economist looks beyond what is
immediately apparent and instead looks much further into the future. In this
world, however, we have many bad economists, and as Bastiat writes in
"That Which Is Seen, and That Which Is Not Seen," "It almost always
happens that when the immediate consequence is favorable, the ultimate
consequences are fatal, and the converse.” As a result, Bastiat warns, “It
follows that the bad economist pursues a small present good, which will be
followed by a great evil to come."
A refusal to look beyond the immediate and “seen” to the “unseen” also leads
to bad economic theory, which, beyond the mere foibles of individual
economists, solidifies the practice of ignoring the hidden future effects of
economic policies. These bad theoretical frameworks inevitably lead to bad
policies and eventually the destruction of wealth via misallocation of
resources within the economy.
This phenomenon is certainly common enough in modern economic policies
and their underlying theoretical frameworks. For example, we have a large
body of economics built on pseudo-facts and unrealistic assumptions. This
has been characterized in part by the over-mathematization of economics. As
a result, economic analysis relies only on those phenomena that can be
quantified, measured, and fit within certain types of models. Other
information is ignored.
In other words, policies built on these theoretical frameworks and
mathematical models focus heavily on what is seen, such as prices, wages,
volume, GDP, and other such metrics. A decline in these factors, it is
believed, must immediately be remedied by other measurable activities, such
as injection of money and credit into the economy, regulations, subsidies,
and so on.
These have an immediate short term and "seen" effect. But, as they are hard
to observe, the long term and "unseen" consequences are often ignored,
disregarded, or outright denied.
However, the long term and unseen consequences of these may include
changes in and the distortion of the market structure, inflation, stifled trade,
destruction of capital and wealth, and misallocation of labor, capital, and
production capacity. These factors may be very hard to observe, although
they have deeper and lasting effects on the growth and sustainability of the
economy.
These unmeasurable distortions of the economy often destroy capital and
give rise to zombie companies and sectors that end up suffocating the
economy by driving out productive companies and sectors.
Bastiat continues, "The true economist pursues a great good to come, at the
risk of a small present evil." Good economics looks to the long term and it
confers great importance to what is unseen due to the fact that it almost
always has longer lasting, more severe, and deeper consequences. For
example, excessive borrowing by government and then the handing out of
welfare is seen. But the entrepreneur who is crowded out of the credit market,
the potential jobs, and the increase in national wealth that he could have
contributed are unseen.
So how to practice good economics?
The good economist takes a very different view, recognizing the importance
of uncovering hidden effects and relationships. This can be facilitated with
less attention to mere quantitative analysis and more attention to sound
theory and qualitative analysis. This, however, requires prudence and
restraint on the part of the economist. It requires he or she allow natural
market structures and mechanisms to follow their natural trajectories so as
to organize the market in the most efficient and productive way. How or
when this is done cannot always be directly observed, and thus it becomes
difficult to tinker endlessly with the machinery of the economy.
The good economist, however, will not be discouraged by this, and will
instead pursue a greater understanding of the economy that includes the
unseen and well as the seen.