The Dunning-Kruger Effect

The 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. Henry Hazlitt [1]

Watch this 19 second YouTube of Nancy Pelosi (D) declaring that 500 million Americans lose their jobs for every month that the stimulus package is delayed, and you'll be on your way to understanding the Dunning-Kruger effect (pdf). Pelosi, off by three orders of magnitude in her figures (three zeroes off), virtually indemnified Obama and Biden for the remainder of their term in office.

Opinions are like a part of human anatomy, everyone has one. The trick while managing our own lives is to recognize the limits of our knowledge of a subject--to know enough to know that we don't know enough. At that point either learning can begin, or we can at least acknowledge that we don't know enough about something.

The Dunning-Kruger effect, a study of metacognition, names that mixture of ignorance and arrogance in those who don't know enough to be aware of their own ignorance and who are arrogant enough to believe that they have the answers. Normally a danger only to themselves, those who don't acknowledge what they don't know can be very dangerous as politicians with coercive power over the lives of others. Examples are plentiful.

In a January 22, 2009 San Francisco Chronicle article, Nancy Pelosi, again demonstrating that mixture of hubris and ignorance, described how Congress and President Obama will fix the weak economy and an ailing health care system:

"We can't fix it all overnight, but we have to begin."

The article also gives a clue as to how Pelosi may have may have become so number-challenged:

"Pelosi said one of her favorite moments from Inauguration Day was when Marine One lifted off the Capitol grounds, signifying former President George W. Bush's exit from Washington. 'It felt like a 10-pound anvil was lifted off my head,' she said."

In another example of the Dunning-Kruger effect, to which politicians succumb, Mayor Bloomberg (R) declared a "war on salt." Apparently his years in public office have taught him a lot about nutrition.

Newly appointed Energy secretary Steven Chu (D), a Nobel prize-winning physicist, but not a climate scientist, may have also just joined the club when the physicist and energy researcher, "a vocal advocate" for alternative energy sources, gained the coercive power of government "to limit greenhouse gas emissions." An intelligent and skilled research scientist, hopefully as Energy secretary, Chu's career path doesn't illustrate the Peter Principle, where capable individuals rise in the hierarchy until they reach the level of their incompetence and remain in a position of authority where they are a detriment to the organization.

In a free market, a private organization suffering from too many inept bureaucrats goes out of business. In America, that business hires lobbyists and gets TARP money.

President Obama, the new emperor, has declared that people are not spending enough money: we need a stimulus package. The collection of people who are the American economy has slowed its spending. Many individuals are cutting spending and saving their money, something which ultimately builds real wealth. Others just don't have money to spend.

Congress, that august body of predominantly (pdf) lawyers, career politicians, and lobbyists, debates for a few weeks on whether to spend $800 or $900 Billion. How long does it take you to decide to spend much smaller sums?

It's different for Congress you say? Congress and President Obama do operate under different constraints. Unlike you and I, who get to decide what to do with our money only, they spend other people's money. Nor do they debate the justice of spending money that belongs to others who have already decided not to spend it. Instead, Congress debates how much new spending to add to the budget, how much spending to keep while cutting taxes and redistributing income, and how many angels dance on the head of a pin.

Who has the better view of reality? The many individuals cutting their spending, or Congress and the President, who are deciding how much of the money to take from those non-spending people and their descendents and spend it as the Congress sees fit? Who has demonstrated knowledge of their fiscal limits? Those who've cut their expenses, or Congress spending money it doesn't have and that doesn't belong to it?

Just as the economy is not a car battery to be jump-started by omniscient politicians, neither is it a machine of any kind to be controlled by "wise" central planners or "well-meaning" fools. "The economy" is an abstraction for the collection of actions of all of the individuals in a place. There are as many wishes and capabilities as there are people. Who has the omniscience to know what's best for you and everyone else other than God? Lawyers-turned politicians who don't even know what they don't know?

Surely not the emperor.

[1] Economics in One Lesson, Henry Hazlitt, Arlington House Publishers, New Rochelle, N.Y. 1979, p.17. Hazlitt gives numerous examples of fallacious economic reasoning that result when all of the consequences of economic policies are not understood. He uses Bastiat's Broken Window Fallacy as his first example.