There they go again

The headline reveled exactly what angle WGME was taking with it's article "NYC Marketing Firm Gets Maine's Business"

There's a major decision and a big change in Maine's $7.5 billion per year tourism industry. Each year, the state spends millions of dollars marketing the state but after 20 years doing that job, a Maine-based company is out, and a New York City marketing firm is in. 

After promoting Maine's tourism industry 20 years straight, Augusta-based Nancy Marshall Communications is out. The state has instead retained the Dilenschneider Group, a New York City marketing agency. 

Economics commissioner George Gervais says a formal, competitive process, one dictated by state law, decided the winning proposal. "I did talk to the review team afterwards and they did indicate that this was a clear winner."

OK, so far so good. Everything is positive so far, but we know what has to come next. After a sad reflection from a representative of the out going firm the reporter decides to bring in a silly elected state official to show off his guess-based economic theories:

Senator Seth Goodall (D) adds, "It's just disappointing that we will be exporting some of Maine's dollars to New York. We should be promoting our own. We have very talented marketing and advertising agencies here in the state."

What Goodall is saying is that this is Maine, not a meritocracy. We don't need to use fair bidding processes and a cost-benefit analysis when we dish out taxpayer money for the state's largest and most important industry. Instead, we need cronyism and favoritism because Maine firms are too weak for fair competition.

But don't worry folks, with the very next paragraph the writer turns everything around. A Maine firm will get a piece of the action:

In fact, one of those Maine agencies, Burgess Advertising and Marketing, will work with the Dilenshneider Group. 

Meredith Strang Burgess of Burgess Marketing and Advertising says, "I'm a huge fan of keeping my business as local as you possibly can. And I think at the same time, they have an opportunity now to work with an international and national public relations firm who daily operates in a very different sphere."

If you were worried that the writer has a fair understanding of basic macroeconomics the final paragraph was wedged in with no transition just to calm that fear.

Burgess Advertising and Marketing does not know yet if there will be any new marketing positions opening up at its firm as a result of this new contract.

Remember dear readers, when you do business in the state of Maine the rules of economics go out the window. Certain people in power want you to believe that businesses exist for the purpose of providing jobs, not to accomplish tasks, provide services or create products.
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Protectionism and the hierarchy of needs

International trade is one of those subjects that people talk about with confidence when they really don't understand the basics. It seems like common sense. Of course we want to be the ones who produce cheap merchandise. Of course China is doing all of our manufacturing for us, as we can clearly demonstrate by looking at where cheap consumer goods are made. Of course the purpose of free trade is to increase our exports.

All three of those common sense ideas are wrong and they require looking at international trade the same way we look at the cola wars, where America and China compete with each other the way Pepsi and Coke compete for customers. Paul Krugman called this view pop internationalism.

Krugman said we should look at China and Japan as trading partners, not competitors. This is a hard sell to the public, and the ignorance of this perspective is what drives protectionism and pseudo economic fads like the "Buy Local" movement.

They tell us, of course the community benefits if you buy from within instead of afar. Of course we should produce our own food. Of course these methods will lead to a higher quality of life for people in our community.

To get into the proper mindset, let's look at providing for the community through the lens of Maslow's hierarchy of needs.

The community must have its basic needs met first. Your library won't do the public much good if everyone freezes to death, and good luck unraveling the mysteries of philosophy if everyone is dying of starvation. The bottom tier of the hierarchy includes things like food, shelter, water and air to breath.

Localists want to have communities feed themselves first, so they support local agriculture as a way to create jobs and keep the community self-sustained.

But remember, jobs are a cost, not a benefit. If you are tying up all your workers with inefficient food production than you will have fewer workers around to tackle the higher tiers of safety, love and belonging, esteem and self-actualization. Who will research cancer treatments, build cars or reinvent higher education if everyone is too busy feeding themselves? That's why the advancements from civilization has always been possible through trade and technology and protectionism is a source of harm for the local community.

With international trade, we put our trading partners to work satisfying some of those needs on the lower tiers so we can concentrate on the higher ones. When China makes our souvenir baseball caps, that frees up our workers to build airplanes.
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Wal-Mart to sell local food

The retailer is jumping on the bandwagon for one reason: profits. Intellectually flawed as it is, it's a no-brainer way of attracting more customers. From Salon this week:

Last week, Walmart trumpeted a major new commitment to sustainable agriculture and supporting local small farms. Coupled with the enormous numbers -- training for 1 million farmers! Investing $1 billion to make its produce supply chain more efficient! -- there were nuggets of common-sense wisdom, the kind that is music to sustainability advocates' ears.

They're right about one thing, the entire mindset relies solely on common sense, which as I've said before, is a recipe for disaster.
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How to avoid discussing economics with the ignorant

In my previous post, I lamented against people who like to talk about economics, but can't be bothered to learn anything about it.

Economist David Henderson has termed this concept as "Do-it-Yourself Economics" and defined it as "firmly held intuitive economic ideas and beliefs which owe little or nothing to textbooks, treatises or the evidence of economic history."

It's not easy to spot these people. They aren't just the general public. As Henderson and Paul Krugman have said, they can be politicians, high-ranking civil servants, talking heads and academics.

Clearly a conversation with a common-sense economist/DIY economist/pop internationalist is destined to go nowhere. They are pretty confident in their economic expertise, despite a lack of relevant education. Unless you're good friends, it's probably best to avoid the subject with them entirely - but how do you know when you've got one?

I recommend the following test. Find a way to ask them if they know what comparative advantage is. This can be as subtle as a roundabout inquiry, or as blatant as a direct question.

Comparative advantage is crucial for understanding economics with any sophistication. When Greg Mankiw was asked what three economic concepts every American teacher should know, he listed comparative advantage, supply and demand and market failures.

Krugman once wrote, "If there were an Economist’s Creed, it would surely contain the affirmations 'I understand the Principle of Comparative Advantage' and 'I advocate Free Trade'." In his great essay "Ricardo's Difficult Idea," Krugman listed understanding of comparative advantage as the great divide between the world views of economists and non-economists.

"I believe that much of the ineffectiveness of economists in public debate comes from their false supposition that intelligent people who read and even write about world trade must grasp the idea of comparative advantage. With very few exceptions, they don't - and they don't even want to hear about it. "

Comparative advantage is the great chasm that separates the people who understand economics from those that don't. Imagine having a biology discussion with someone who has never heard of genes. The only difference is most intelligent people have heard of genes. Comparative advantage is sadly obscure.

That doesn't stop a lot of people from talking about who should get paid what and what jobs should be done where. Without comparative advantage, these opinions are painfully uninformed. Someone who does understands comparative advantage, however, will probably have an insightful view of economics and is worth listening to.

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My war with common sense

I keep hearing people I know and respect talk about "common sense" as a good thing.

It's pretty hard to separate common sense from "conventional wisdom," but neither are always reliable. I think of common sense as a straightforward, unthinking conclusion. For example, common sense tells us the sun revolves around the earth. We know this because we can see it with absolute clarity.

Of course, research taught us that the earth revolves around the sun, and not the other way around. Research and common sense can be very much at odds with one another, and I toss my lot in with research as the best way to know things. Sure enough, research can be wrong. However, it's further research that corrects it - not naked, clueless observations.

That being said, there are a lot of people that attempt to know things by using common sense and ignoring research.

Take creationists. These people, well intentioned as they may be, know next to nothing about biology. They do not study biology. Normally, I wouldn't fault a person for that, but these people have a great interest in biology. We know this because they speak about biology all the time. They do not make sophisticated criticisms based on intimate knowledge of the subject, but instead make "common sense" observations on a simplified version of biology. For example, "If we came from monkeys, why are there still monkeys?"

That common sense observation may convince some people, but those who study biology know that we do not come from modern monkeys. Instead, monkeys and humans share a common ancestor. That doesn't make the creationists stupid, but it does show that they are intellectually lazy and rely on "common sense" observations.

I feel the same way about "buy local" activists. These people aren't stupid or dishonest. Instead, they have fallen for a common sense solution that doesn't pan out. Clearly, localists have a deep interest in economics. They talk at length about the multiplier effect, supply and demand and growth. They don't know anything about comparative advantage, economies of scale, opportunity cost or creative destruction. Apparently, their interest in economics isn't strong enough to get them to actually study economics.

That's the part I've never understood, and respected even less. If you have such a strong interest in a science like economics, why would you try to guess your way through it with common sense? Shouldn't you be concerned that something counter-intuitive will come up? As Scottish economist John Kay said on the idea of "Do it yourself economics";

"Anyone who claimed expertise in 'practical physics' derived from their experience of driving an automobile or boarding an airplane would immediately reveal himself a fool. It is a measure of the failure of economists to persuade the public of the value of what they do that those who claim practical knowledge of economics suffer no such reactions. There is almost no DIY dentistry, little DIY history or law, rather more DIY medicine. There is much DIY economics."

Common sense tells us that if there's a problem in our society, we should have the government solve it. It tells us that making guns harder to buy will make us safer. It's common sense that closing sweatshops will make life better for people in poor nations. All of these common sense solutions sounds really good, but have the opposite effect.

Perhaps the flaw in settling for common sense explanations is obvious to someone who wants to know what really motivates the other side of an issue, but the flaw is invisible to someone who jumps to conclusions if they are presented by a trusted source, such as an activist with a similar world view.

Of course, one should ask, how do you know if this activist knows what they're talking about, or is just using common sense?

EDIT - A reader called me on my characterization of government solutions as always counterproductive. I overspoke and to the point of being false. I would have been better off listing specific examples like the embedded link - public transportation. Counter examples, where the government does help, include World War 2 and enforcing property rights.

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