"Underpants Gnomes" Political Economy

Art Carden

 It's fair bet that a lot of the policy proposals that come into your field of vision are based on a view of the world more appropriate to the Underpants Gnomes from South Park than serious and reasoned discussion.


A bit of background is in order. The boys from South Park are due to give a presentation to voters in which they explain why the town should prevent a giant corporation ("Harbucks") from opening next to Tweek's Coffee, a local establishment. They encounter a group of gnomes who have been stealing underpants as part of a big plan, broken down into three phases:

 

Phase 1: Collect Underpants
Phase 2: ?
Phase 3: Profit

When the gnomes are pressed on the question mark and asked how, exactly, they get from underpants to profits, they don't have a good answer.
It works the same way with a lot of policy discussions.  Consider virtually any problem that professional hand-wringers in the media and the academy worry about. The argument usually proceeds as follows:

Phase 1: Pass a law.
Phase 2: ?
Phase 3: virtue and/or prosperity.

Economics is the art of seeing what happens in Phase 2 and determining whether the proposed intervention will lead to the desired outcome. As Henry Hazlitt wrote in his book Economics in One Lesson (which I discuss here), "(t)he art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."

Or, as Thomas Sowell subtitled his book Applied Economics, economics involves “thinking beyond stage one” (or Phase 1, in this case).  In other words, the art of economics is the art of seeing what happens in Phase 2 and whether this actually leads to Phase 3......

.......Or consider a hobby horse of my friends on the left: universal health care. The very phrase is misleading because it assumes that passing a “make it so” mandate will lead to “universal health care.” Or, to modify the way Steven Horwitz and I put it last year, the implicit model borrows from the Underpants Gnomes:

Phase 1: Pass a law decreeing that everyone gets free health care.
Phase 2: ?
Phase 3: Everyone has all the health care they need.

This certainly isn’t to say that American health care isn’t really, really messed up or that it doesn't need fixing. It is and it does. However, we have to be very careful to understand first what happens in Phase 2 and second whether this will lead to everyone having all the health care they need...........

https://www.forbes.com/sites/artcarden/2011/07/14/underpants-gnomes-political-economy/#32fa89ab4e2e