In Praise of the Conventional Wisdom
JANUARY 01, 1969 by JACK MCCROSKEY
The author is Associate Professor of Finance and Economics at the University of Denver and is the current editor of Business Economics.
Since its invention in 1958 by John Kenneth Galbraith, the phrase "conventional wisdom" has developed into an insult of broad and devastating power. Call an idea a part of the conventional wisdom, and far too many people, including many businessmen and college professors, are reluctant to pursue the thought any further. Who, after all, wants to sound archaic?
This development is thoroughly deplorable, for much of the conventional wisdom, although ancient and often neglected, is as valid today as ever. It deserves both defense and praise in face of the onslaughts against it.
Here are seven propositions drawn from the conventional wisdom, the attacks against them, and some of the ways they might be protected and preserved for use in the political debates ahead.
· You can’t have everything—resources are scarce.
Old hat, say many of our most popular critics. So marvelous is the U. S. productive machine that we actually can have everything. Automation has made work obsolete. People who prefer not to work should be put on the dole and encouraged to roll around heaven all day.
The facts of the matter are the reverse, of course. Median family incomes in the United States now run about $8,000 annually; and, if we push ahead as diligently as we can, they may reach $20,000 annually by the year 2000—a sum most intellectuals who disparage the need for economic growth already earn or at least aspire to.
The key problem confronting the United States is still how to increase output, not how to redistribute what we already produce. Our major and continuing goal should be to bake a larger economic pie so that everyone can eat a bigger piece, not to reslice whatever pie is already on the dish.
· It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from regard to their own interest.
Most people today, our intellectuals insist, work primarily for honor and wisdom, security and status, blue ribbons and letter sweaters. Their desire for money is strictly secondary.
While the foregoing view may be partially correct, it is equally correct that given the current status of human nature we also need monetary incentives.
We need high wages and salaries to foster personal pride and dignity. We need high profits to encourage saving and risk taking. And we need tax rates that let us keep a senior partner’s share of whatever rewards our efforts generate.
· Consumers are kings.
Many social critics find this notion terribly quaint. Consumers are enslaved by the hard sell and the soft sell, say the critics, by planned obsolescence and a compelling impetus to waste. Let advertising croon its seductive tune, and consumers will tumble all over one another in a psychedelic scramble to buy any shabby contrivance sung about.
The truth is that no amount of advertising can sell consumers what they don’t actually want—at least not for long. The American economy abounds with examples of massive marketing and advertising campaigns that failed. The sad saga of the Ford Motor Company’s Edsel is the most renowned. And there are many others—including General Foods’ inability to promote corn flakes with freeze-dried peaches even after advertising expenditures of more than $3.5 million in 1966 alone. Not even the nation’s dogs can be euchred into consuming what they don’t genuinely enjoy, a point demonstrated by General Mills’ decision to phase out Speak dog food after spending over $1 million annually on advertising.
Consumers, being neither philosophers nor saints, naturally make mistakes. But by and large they do an excellent job of managing their own affairs—no matter what the critics claim. Heavy-handed emphasis on laws to "protect consumer interests" will ultimately reduce both consumer pleasure and consumer choice.
· Build a better mousetrap, and the world will beat a path to your door.
If consumers really were subliminally driven to buy whatever advertising men tell them to buy, then the search for new and better products would prove superfluous. Consumers, the silly sheep, would enjoy being sheared. Besides, like the vast majority of sheep, they couldn’t tell a superior mousetrap from an inferior door knob.
But U.S. businesses are engaged in a never-ending quest for new and better products, as is attested to by their $7.5 billion annual expenditures on research and development. Businesses don’t spend these sums out of altruism; they spend them in order to keep alive and growing in our hotly competitive economy.
What really affronts and frustrates many intellectuals is not the economy’s failure but its smashing success in providing a bountiful array of mouth-watering items. It simply sets some intellectuals’ teeth on edge to see most of the American people enjoying new automobiles and color TVs, vacation trips and football games, when, in their view, these people should be writing poems, painting pictures, and playing lutes.
The market caters to consumers not to the whims of reformers.
· Higgling and haggling in the market place determine relative prices.
Not so, according to some of the most fashionable thinkers of our time. The market, like God, is dead. Five hundred or so giant firms dominate America’s economy, and these firms set prices at whatever levels they please.
If businessmen completely commanded prices, then presumably the prices of individual products might sometimes rise but would never, never fall. From the many thousands of possible examples, here are just two showing that such command is absurdly exaggerated. One, from consumer markets, concerns TVs, which fell from around $300 for a 12-inch table model in 1950 to around $130 for a decidedly superior 17-inch set today. The other, from industrial markets, concerns basic aluminum, which fell roughly 30 per cent between 1961 and 1965. Surely, if TV and aluminum producers held absolute power over their prices—if they could safely ignore pressures from rivals who covet a piece of the action—then they used their power in the wrong direction.
Government, not business, constitutes the most immediate threat to free markets. And one of the most progressive steps we could take today would be the ending of government control programs, many of which were introduced during the bad-old-days of the 1930′s and most of which constrict the sway of competitive forces. For instance, minimum-wage laws, far from helping the poor, have pushed workers on the bottom rungs of the achievement ladder out of their jobs altogether; restrictions on agricultural output, far from preserving the family farm, have helped force down the number of farms from seven million in 1935 to three million in 1968.
· Government should do for the people only what the people cannot do for themselves.
Mention a problem—any problem from auto accidents to agricultural prices to dirty air—and a great many Americans will jump to the conclusion that the Federal government could immediately fix up the situation if only it wanted to. Arguments that government shouldn’t and can’t do everything are interpreted as a serving of political horseradish or as a sign of indifference to human suffering.
The fact is that government shouldn’t try to do everything. It’s a matter of record in countries from Hitler’s Germany to Mao’s China that centrally directed economic systems crush human liberties, political and artistic as well as economic. It’s also on the record that overly ambitious programs of the U. S. government lead to the loss of our traditional freedoms. Moreover, many government programs, such as public housing, have worked out in precisely the opposite way intended.
Much of what is needed in the United States today is a reordering of national priorities. Government has plenty to do, especially in the way of preserving the peace, with liberty and justice for all. But it can’t do everything at once. Clearly we should take a fresh-eyed look at some of our older projects, particularly our subsidies to various political pressure groups which run into billions of dollars annually. We should also, whenever a new problem is discovered or invented, give serious thought as to whether private businesses and individuals might be able to cope with the trouble without running to Washington. And if it is a problem that can’t be solved voluntarily, does that logically and automatically render it soluble by force?
· Everyone has to pay his bills sometime or other—even the Federal government.
The New Economics, which is based on the assumption that adroit manipulation of Federal spending and taxing can banish both recessions and general price rises, has been over promoted. American supporters of the New Economics apparently encountered so much resistance in first selling the notion that Federal deficits might sometimes prove beneficial that they went overboard in their public pronouncements. As a result, many government officials and even many businessmen suffer from the delusion that deficits don’t matter.
But deficits do matter. And just a quick look at some of our most pressing economic problems will provide any fair-minded observer with persuasive evidence. Both our mounting inflation and our deepening difficulties in world money markets have stemmed in large measure from the cavalier acceptance of Federal deficits.
The Federal government, no less than the most humble private citizen, must handle its financial affairs with reasonable prudence—or else suffer the uncomfortable consequences. Far from being outmoded, this bit of conventional wisdom is more up-to-date than Marshall McLuhan.
Why, in the face of so much evidence, is the conventional wisdom held in such low repute? The easy answer is simply that our times are out of joint. Alienation and despair are the catchwords of the day. And despite our extraordinary progress over the past several decades—including the marked increase of investment and production and the sharp reduction of poverty—every other person you meet seems convinced we’re heading straight for economic perdition.
Maybe it’s because life is moving entirely too fast. Instant food, instant money, and almost instant travel from New York to Los Angeles—all these are perfectly delightful. But perhaps they’ve also given us an impossible-to-satisfy appetite for instant utopia—a never-never land where hard work, personal disappointments, and all income differentials are not only abolished but abolished right now.
Well, we’ll probably never reach utopia. What we can do is move toward a generally healthier, wealthier, and wiser society by making the right choices, some of them very hard choices. Much of what we need to help guide us along the way is less intellectual novelty for novelty’s sake and more respect for the conventional wisdom.