Sunday, February 26, 2006

Checking for Fallacies

Way back when, Mike and I came up with the idea of The Fallacy of the Unclaimed Dollar. I doubt this idea is new, but the fallacy goes a little something like this: If something hasn't happened yet, it's probably a bad idea. The name comes from a joke economists like to tell each other about a professor refusing to pick up a dollar bill because if it was really there, someone would have picked it up by now.

(Side Note: I actually want to change the name to Fallacy of the Unclaimed Fortune, but for consistency's sake, let's keep with the original name.)

It's recently occured to me that Austrians may be committing this fallacy despite our focus on the ongoing process of market change, that circumstances aren't predetermined. At the very least, we get dangerously close to commiting this fallacy when we dismiss a government agency as inefficent because "if it was a good idea, the private sector would have done it."

Granted, that's just the tip of the iceberg for arguments against Agency X (the government isn't spending their own money; they don't have a strong vested interest in being effective or efficent; they lack the relevant knowledge to accomplish such a task and on and on and on). And far be it from me to suggest a rationale for government agencies. But if we are to be scientists and if we are to avoid the intellectual traps of lazy or simplistic arguments, we should be prepared to move past this standard claim and acknowledge this is not a sufficient argument for everything.


ryan said...

What's more, the argument cuts both ways: if it's true that what's already been done has some wisdom, then this is true for what the government already does. If a government program is so obviously stupid and getting rid of it wouldn't have nasty consequences, why hasn't anyone gotten rid of it already?

David said...

An interesting point, Ryan, but I think the public choice economists have an answer for that. Basically, it goes that the people who fund the thing don't have a strong enough incentive to try to remove it because the costs are disperse among millions of taxpayers (and since taxes are forced on a people, they have to make more effort to not pay than to pay). Contrast this with those in the agency who reap the concentrated benefits and have a strong incentive to keep the failed agency around.

ryan said...

Agreed -- but that just means that it's possible to make an argument from either side against the status quo, even if you think people are rational. "Yes, people are rational -- but there are public goods and free rider problems." Or, "yes, people are rational, but special interests fooled the median voter." But I'm just saying, the argument isn't Austrian at all -- it's Burkean. Not that that's necessarily a bad thing -- sometimes there are very good reasons for the apparent absurdities of the status quo. You might just be hallucinating that dollar on the ground.