At one point I was an avid reader but, as the Economist descended into nothing more than a witty distillation of the conventional wisdom of the moment, it stopped being interesting. This piece really exposes their thinking:
"Here's the thing: as history progresses, things change. And societies try to adapt to those changes. Experts come up with solutions to the problems the societies face. Those solutions often entail discomfiting established interest groups. And the solutions the experts come up with almost always entail some degree of perverse counterreaction, some kinds of problems or inefficiencies or whatever. It can be very interesting to focus on those counterreactions; it can generate fascinating, eye-grabbing journalism. But in the overwhelming majority of cases, the counterreactions aren't as big as the first-order effects of the solutions. The minimum wage may price a few people out of the labour market, but it mostly raises low-income people's wages. Raising marginal income taxes does slightly lower rich people's incentives to generate income, but it mostly raises government revenue. In other words, the little contrarian thing is almost never anywhere near as important as the big first-order thing it rides on. And as journalism has come increasingly to focus on contrarianism, it has become less and less adept at actually describing the world."
We can argue about the specific things claims they've made. For example, the effect of tax cuts and hikes on revenue clearly depends on which tax and over which time period. There is plenty of evidence (PDF) that corporate tax cuts increase revenue quite quickly, for example. And, abolishing the 50p rate would increase revenue as well. I haven't read the Superfreakonomics book that is the main subject of their article. But what really struck me was their overall argument that journalists should pay less attention to second-order, unintended consequences of proposed policies.
The world is just starting to recover from the worst financial crisis since the Great Depression. Countless people have been ruined and institutions and entire economies have been destroyed. However, only a conspiracy theorist would suggest that any of the bankers, regulators and ministers responsible intended for their decisions to lead to such a crisis. Most of the bankers have lost quite a lot of money, though they are still extremely wealthy by normal standards, and have a serious black mark on their reputations. They thought that the first-order effect of their decisions, an increase in earnings, would be good for themselves and shareholders, and that increases in risk were manageable. The politicians and regulators thought they were doing the right thing, that the frameworks they had put in place would ensure stability, whereas our research (PDF) has shown they actually drove the financial crisis. The Basel banking regulations, in particular, were a classic case of a policy which aimed to ensure stability but where the second-order effects meant that it was pro-cyclical.
For the Economist to be, so soon after the crisis, saying that we need to pay less attention to unintended consequences is absolutely shocking. The kind of complacent, shallow thinking that they are recommending will lead to more mistakes, and more crises. Let's hope that the Economist isn't speaking for its elite readership. And, let's hope that other journalists are going to keep listening to "contrarianism".
