Wednesday, May 24, 2006

A post I can't ignore

Scott Adams on The Dilbert Blog today has a provocative post (to me at least) entitled "How to Think Like an Economist." He says, very accurately:

The most important skill you learn in business and economics classes is how to compare things. The average person can be forgiven for lacking those skills. It’s not a natural capability. Like most things, it helps to be trained.

Economists do think alot about how to compare things although that is a task that is required only if certain questions are asked. .

His question today was "should the United States send $3 billion per year to Israel?" Adams then criticises previous comments on his post that named only the possible benefits of giving aid to Israel. He argued that to answer this question you need to compare those benefits to other possible uses for $3 billion.

This is right, but his criticism on his readers is unfair. His original question was "why do we give foreign aid to Israel?" To see why this is unfair, you need to know that economists make a distinction between normative questions (why should we do that) and positive questions (why do we do what we do). To answer normative questions requires being able to compare the activity in question to other alternatives. Sometimes that helps us understand a related positive question but not always.

For the Israel question, the distinction is important. Consider some of the good answers given by Adams' readers:

- Aid was part of the U.S. promise at the Camp David peace accords to get agreements between Israel and Egypt. Egypt gets about the same amount of U.S. aid as Israel. (How long did the U.S. agree to continue funding? Forever?)

- In exchange for U.S. aid, Israel is required to buy stuff from the U.S. (mostly military), thus lining the pockets of the military industrial complex.

- U.S. politicians don’t want to lose Jewish votes.

- Many Christians in the U.S. believe that the nation-state of Israel must be restored and the Temple Mount rebuilt prior to the return of Christ and the following "Tribulation." Thus, support for Israel as a nation-state is viewed as supporting God in history's culmination.
Only the last of these questions is one that requires comparing alternatives as to whether this is a good way to spend money in order to understand why the funds are spent. The first three do not. They are answers to the positive question without the same normative elements.

Answer three is political for which proper analysis is whether this is the best way for politicians to win elections. So there is a private comparison for politicians there. The first and second answers are that the funds are not funds but a payment for services (I guess three is like that to). In this case, the question is whether the services were worth paying for or not at the time agreements were made.

In the end, Scott Adams needs to be clearer when he asks a question like this so as to distinguish the positive from the normative.

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