Wednesday, August 18, 2021

Populist Economic Thinking

Here's a piece of research documenting something many of us have long known: that many people refuse to believe an economic transaction can benefit both parties:

A core proposition in economics is that voluntary exchanges benefit both parties. We show that people often deny the mutually beneficial nature of exchange, instead espousing the belief that one or both parties fail to benefit from the exchange. Across four studies (and 8 further studies in the online supplementary materials), participants read about simple exchanges of goods and services, judging whether each party to the transaction was better off or worse off afterward. These studies revealed that win–win denial is pervasive, with buyers consistently seen as less likely to benefit from transactions than sellers. Several potential psychological mechanisms underlying win–win denial are considered, with the most important influences being mercantilist theories of value (confusing wealth for money) and theory of mind limits (failing to observe that people do not arbitrarily enter exchanges). We argue that these results have widespread implications for politics and society. 

Are they ever. I would emphasize, though, a different axis than buyer-seller. The working people I have hung around with seem to think that in every transaction, the richer party wins; unless, that is, the other party is clever enough to have pulled off some kind of trick. The idea that, say, the person who hires a roofer and the roofer himself benefit equally (one gets a new roof, the other cash) seems absurd; obviously either the roofer ripped off the homeowner, or else the market was bad and the roofer had to accept a terrible price from a smug bastard unwilling to share his wealth in tough times.

In this view life is a constant struggle in which everyone is using every advantage he has to get the slightest edge. Money is the biggest advantage, so the rich usually win, but smarts or fraud sometimes beat it. Only a fool thinks hard work will ever get you ahead.

I think the ubiquity of this thinking explains why, on the one hand, few workers are big supporters of capitalism — big firms are obviously using their advantage to screw everyone else – but on the other hand don't much like socialism, because when have you ever gotten a good deal from the government? The only alternative to this jungle kingdom would be a utopia of kindness in which people shared all they had willingly, without ever worrying about keeping score.

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