The Economics of Expectations

Luke Robson

In the economic world, it is all too easy to assume “the dismal science” operates just as any other science. As the header of this blog reminds us, every action should have  a predictable outcome. Economics, however, is the study of human action, and humans are not so predictable.

The fallacy of viewing economics as a science rather than a humanity has occurred due to changing expectations around the role of economics in society. These expectations have also  changed the way economists operate. Society today expects solid, mathematical answers, and the economists of today often attempt to provide these answers. But this ignores the fact that humans, the subject matter of economics, are not automatons and often react in surprising ways, unlike the subjects of the true sciences.

The consequences of changing expectations for economics have also resulted in changing expectations in other areas of life.  These changed expectations result in different outcomes, even if everything else remains the same. Sometimes all that is needed to alter behavior is simply altered expectations, rather than legal or physical intrusions.

For a recent example, we have only to look back at the recent election of President Trump and what his expectations for immigration have done to illegal immigration flows. Under the Obama administration, there was a high expectation that illegal aliens, once having crossed the border, would be able to at least gain a foothold in America. Also, the deportation process under the Obama administration, along with administrations prior, created a stagnant court process which held up many deportations from occurring. This slow process, along with a general attitude which looked kindly upon illegal aliens, helped foster a spike in illegal immigration numbers during Obama’s second term. Trump has since expedited this process, allowing for a heavier deportation schedule, and has publicly expressed his desires to stop illegal immigration and to deport any illegal aliens. In turn, the number of illegal immigrants crossing the border has fallen significantly.

The expectations surrounding immigration are not the only things which have changed in recent years. 60% of Americans are now saying that they believe the government should ensure health care coverage. The increase has been particularly large in lower-income Republican groups over the past year. This change in the expectations of the American public has shown its effects in the current policy debate over the GOP health care bill. While the GOP wishes to reduce the extent of the Affordable Care Act, or Obamacare, they are politically unable to alter it in any meaningful way. Across much of the Western world, and now in America, government-subsidized insurance or a single-payer system is becoming the popular expectation and may one day become a reality.

Expectations regarding the use of the welfare system are on the move as well. The modern welfare state, created by Lyndon Baines Johnson in his movement for a “Great Society”, was originally intended to be used as a leg-up. But first-hand experiences as described by writers such as JD Vance, Rod Dreher, and Charles Murray have instead found that it has shifted to being more of a crutch as its beneficiaries have lost the stigma that used to accompany being on welfare. Rather than a temporary boost, welfare is now a way of life for many impoverished Americans. In areas where it is still viewed as a leg-up, as in Utah, welfare programs tend to perform better.

Why should economics predict these outcomes? In economics, an action occurs only if the perceived benefit of that action exceeds the perceived cost. In the case of illegal immigration, the higher likelihood of deportation and decreased chance of gaining a foothold in America due to differing expectations has increased the perceived cost of illegally crossing the border. The perceived cost of altering health care has also changed in recent years. Before the ACA, many people were concerned with the cost of additional taxes in their lives. Now that many have adjusted to the additional costs imposed, they’re more concerned about the potentiality of losing their health care, or of someone else losing theirs. The subject of the perceived cost has turned from their bank balance to someone else’s life, and has consequently altered the equation for many people. Regarding welfare, the social stigma of being a welfare recipient was initially a fairly high perceived cost. As people grew up under welfare, that stigma has been lowered or altogether removed. While the stigma of receiving welfare had nothing to do with monetary value, it still altered the perceived social cost of receiving welfare, raising the total cost higher for some than the total value received.

Expectations are ideas about what is to come. Like all ideas, expectations have consequences. This also should be a lesson for our daily lives Which expectations are we going to surround ourselves with in our personal and political lives? History has shown time and time again that having high expectations for yourself and those around you lends itself to better outcomes, both personally and for the community-at-large. Perhaps our expectations for ourselves and our peers have become lax, and it is time to reconsider the expectations we are operating under. This is a critical process, and one which might just change our world for the better.

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