The philosopher Daniel Dennett recently died. Although his work focuses on topics such as consciousness and philosophy of mind, his ideas can find applications in other areas of life, including economics. There is one idea in particular that he described in his book Intuition pumps and other thinking tools I want to emphasize here what Dennett calls “depth.”
Dennett describes a “depth” as a comment that appears meaningful but is actually tainted with ambiguity. There are two different ways to interpret the statement. One interpretation is that this constitutes a significant and substantial assertion, but this assertion is flatly false. According to another interpretation, this statement is true, but only trivially true.
This has some similarities to Scott Alexander’s “motte and bailey” fallacy. describe Before:
The motte-and-bailey doctrine therefore applies to bold and controversial statements. Then when someone challenges you, you fall back on an obvious, non-controversial statement and say that’s what you meant all along, so you’re clearly right and they’re stupid for challenging you. Then, when the argument is over, you go back to making a bold and controversial statement.
The two ideas are similar in that they refer to statements that fluctuate between interpretations, but there are some differences. In Motte-et-Bailey, it is not necessarily that the bold statement is false – it is simply that the bold statement actually made is not defended. Motte-and-Bailey is a sneaky argumentative tactic to get around the defense of a claim. A depth, as Dennett described it, is more like a trick you can play on yourself. The depths can trip up our thinking when we unknowingly transfer the truth value from trivial to substantive interpretation.
That said, here are two examples of economic depths that are often found. The first is the idea that imports reduce GDP, and the second is the idea that price increases are the result of greed.
For the first example, I’m actually being generous in granting that this statement might even be trivially true. It is only in what Pierre Lemieux has called “a narrow sense of counting” – if we look at the accounting identity of GDP, we see that GDP = G + C + I + X – M. That is, GDP is equal to government spending, plus consumer spending, plus the investment. spending, plus exports, minus imports. While exports add to GDP, imports are subtracted from it. So doesn’t this obviously mean that imports reduce GDP?
Well no. Although I have complained many times that many economic misunderstandings arise because economists are simply bad at naming concepts (public goods!), in this case, I must acquit the profession of this accusation. What GDP conveys is there in its name: gross domestic product. That is, it’s a measure of things that were – wait for it – product on a national level. Imports, by definition, are things that are not produced at the national level. If it is true that imports are subtracted from the accounting identity of GDP, it is because what GDP measures excludes, by definition, imports. Subtraction takes place to avoid double counting. Recently, I spent $5 on avocados imported from Mexico. This $5 would appear in part C of the identity above – this was $5 of consumption. But since avocados were not produced domestically, that $5 is subtracted from the GDP calculation as M. This does not mean that GDP was “reduced” by $5 in any meaningful sense. This means that this $5 of consumption was not part of GDP as defined.
The substantive claim made by those who claim that imports reduce GDP is the idea that Americans would have a higher standard of living if we exported more and imported less. But that’s flat out false. Exports (again, by definition) are things that American workers spend time, money, and resources to produce, and that foreigners have the advantage of consuming. Consumption is a benefit and production is the cost of acquiring that benefit. (Indeed, as Adam Smith wisely said, “consumption is the only end and goal of all production. “) Exports are what the citizens of a nation incur by bearing the cost of production but do not get the benefit of consumption. Because exports are produced domestically (by definition), they are part of GDP, but that is very different from saying that more exports and fewer imports would improve living standards or enrich citizens significantly. Another way to demonstrate this is to rearrange the GDP accounting identity. Suppose you want to live in a society where citizens enjoy high levels of consumption and investment. You get C + I = GDP – G – X + M. That is, many exports and few imports mean low levels of consumption and investment, and many imports and few exports mean low levels high consumption and investment.
The second depth, that greed explains price increases, can be interpreted in a way that is trivially true. Producers want to make as much money as possible and will therefore prefer to sell at higher prices in order to make more money. But this claim is often made to explain things like skyrocketing prices, and in this more substantive context, this claim is clearly false. The desire to make more money rather than less is a constant. Price changes are a variable. Explaining a change in outcome by appealing to factors that have remained the same is an explanatory impasse. For example, not long ago the price of eggs increased sharply in the United States. Does “greed” explain this rise in prices? Trivially yes, but fundamentally no. If egg farmers sold their eggs for $3 a dozen and then raised the price to $6 a dozen, how does “greed” explain change? If greed is the reason they sell for $6 a dozen, then why did they sell for $3 a dozen to begin with? Were egg producers altruistically motivated in the previous era, then all simultaneously became more greedy, before suddenly becoming less greedy again? Economist Justin Wolfers once tweeted a pretty striking chart of egg prices:
The same reasoning that the massive rise in prices towards the end of the graph is explained by “greed” would also imply, if applied consistently, that the precipitous drop that takes place shortly thereafter is explained by a massive decrease in greed. Or, instead of trying to explain changes by appealing to what hasn’t changed, we might try to explain changes by appealing to other factors that have also changed. Such as, for example, changes in the supply and demand situation caused by the spread of an avian disease which significantly reduced the supply of eggs in the short term.
These are two common examples of economic depths. If any come to mind, dear reader, do not hesitate to share them in the comments!
