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The Fallacy of Ignored Consequences
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On October 3, 2003, Charles T. Munger, the largest shareholder in Berkshire Hathaway after Warren Buffett, gave the Herb Kay Undergraduate Lecture to the Economics Department at the University of California, Santa Barbara after which, I have no doubt, he was soundly applauded. Unfortunately, the lessons he taught made not a single impression on the minds of the attendees.
Although he made many salient points, one was that economists pay too little attention of second and higher order effects. He said that “this defect is quite understandable, because the consequences have consequences, and the consequences of the consequences have consequences, and so on. It gets very complicated. When I was a meteorologist I found this stuff very irritating. And economics makes meteorology look like a tea party.” I call this practice of ignoring higher level consequences the fallacy of ignored consequences.
It is well known, of course, that if one can select the data to be taken into consideration, almost anything can be proven, since the ability to select the data is but one iota removed from simply making the data up. This fallacy is akin to the well known statistical fallacy called confounding, for although a positive correlation can often be found between two things, it is never known whether the correlation is not an accidental result from another correlation that is not taken into account in the data selected.
All economists who advocate globalized free-trade commit this fallacy, because the only data considered are the prices of the imported products. Here is an example: Dr. Steven J. Balassi, who teaches economics (MBA and undergraduate) for several San Francisco Bay Area Institutions, wrote in a comment that “It depends on what perspective you take. If you take the U.S. perspective, jobs moving overseas are bad and good. They are bad for those losing jobs but good for the price of the product. If you take a global perspective, trade is good. If one job is lost in America but two are gained in India, that is good for humanity. It is once again good from the product price standpoint.” Ignoring the poor syntax in this comment, which indicates that Dr. Balassi was himself not a superlative student of even his native language, I would maintain that the perspective of economists is always too narrow.
The price of products has meaning only in relation to other things, as for instance, the income of consumers. But considering only the price of products entirely ignores other costs of international trade, which if added to the price of products would make the claimed advantages of it ludicrous.
For instance, the BBC has just reported that hundreds of thousands of unsafe chargers, imported from China, for mobile phones, games consoles, and music devices could have made their way into the UK. Some of these chargers carry a CE safety mark which officers believe to be fake. The chargers are being sold for about £5 on the internet and about £6 in shops. Safe chargers, which have been checked properly, retail for around £15. Concerns were raised about the safety of chargers 18 months ago following the death of a seven-year old British boy who was found dead after using his game console’s charger. Trading standards officers are trying to recall the chargers. The chargers also give electrical shocks to their owners, overheat, explode, and cause fires.
If the costs of cleaning up the damage from recalling and disposing of, treating those injured by, and compensating families for the deaths of their children caused by these products were added to the £5-price, what would the true cost of these imports be? But this is a minor example.
The Black Death was carried east and west along the Silk Road by traders. The introduction of smallpox into the Americas by Europeans obliterated entire Native American civilizations before they were ever even seen by Europeans. Were the imported products worth the lives of the millions who died?
The chestnut blight, which wiped out the American chestnut tree, was caused by a fungus introduced by the importation of Japanese chestnut trees. The fungus virtually eliminated the American chestnut from over 180 million acres of eastern United States forests and was a disaster for many animals that were highly adapted to live in forests dominated by this tree species. For example, ten moth species that could live only on chestnut trees became extinct. The Asian clam came to North America from China. This mussel clogs condenser tubes, raw service pipes, and fire fighting equipment and decreases the efficiency of energy generation, a major problem today. Cuban treefrogs are believed to have been introduced into Florida in cargo imported from Cuba. These frogs are attracted to the buzzing noise of electrical transformers and often short out the transformer causing localized blackouts. Dutch elm disease has severely damaged the American elm. European starlings, mute swans, and nutria demonstrated the characteristics of invasiveness long after their original introduction. The Australian paperbark tree has replaced native plants, such as sawgrass, in over 400,000 acres of south Florida. Because it has a combination of spongy outer bark and flammable leaves and litter, it increases fire frequency and intensity. Many birds and mammals adapted to the native plant community declined in abundance as paperbark spread. Aquatic plants such as the South American water hyacinth in Texas and Louisiana and marine algae such as Australian Caulerpa in the Mediterranean Sea change vast expanses of habitat by replacing formerly dominant native plants. The European parasite that causes whirling disease in fishes, introduced to rainbow trout in a hatchery in Pennsylvania, has now spread to many states and devastated the rainbow trout sport fishery in Montana and Colorado. The predatory brown tree snake, introduced in cargo from the Admiralty Islands, has eliminated ten of the eleven native bird species from the forests of Guam. The Nile perch, a voracious predator introduced to Lake Victoria as a food fish, has already extinguished over one hundred species of native cichlid fish there. The zebra mussel, accidentally brought to the United States from southern Russia, transforms aquatic habitats by filtering prodigious amounts of water (thereby lowering densities of planktonic organisms) and settling in dense masses over vast areas. At least thirty freshwater mussel species are threatened with extinction by the zebra mussel. The U.S. Fish and Wildlife Service estimates a potential economic impact of $5 billion in the Great Lakes attributed to impacts of the zebra mussel and attempts to mitigate those impacts. Zebra mussels have virtually eliminated native mussels from the Great Lakes and altered the basic food chain, threatening the availability of microscopic food for native fish. The sea lamprey reached the Great Lakes through a series of canals and, in combination with overfishing, led to the extinction of three endemic fishes. The first sailors to land on the remote Atlantic island of St. Helena in the 16th century introduced goats, which quickly extinguished over half the endemic plant species. North American gray squirrels are driving native red squirrels to extinction in Great Britain and Italy by foraging for nuts more efficiently than the native species. The Hawaiian duck is being lost to hybridization with North American mallards introduced for hunting. The rarest European duck (the white-headed duck) is threatened by hybridization with the North American ruddy duck, which was originally kept as an amenity in a British game park. The ruddy duck escaped, crossed the English Channel, and spread to Spain, the last stronghold of the white-headed duck. Ornamental fig trees, planted in the Miami area for over a century because they were sterile, requires a particular wasp to pollinate it, and the wasps were absent. About fifteen years ago, the pollinating wasps for three fig species arrived and now these fig species are reproducing. At least one has become invasive, with seedlings and saplings being found many miles from any planted figs. More cases of this phenomenon, termed “invasion meltdown,” are likely to arise as more species are introduced and have the opportunity to interact with each other. And this, believe it or not, is a short list.
Approximately 68% of fish species lost in North America over the last century were caused by an invasion of exotic species. and has also caused the economy to suffer through the obstruction of industrial and municipal water pipes and the displacement or elimination of important commercial and sport fishing species. Public health is also negatively impacted. For example, in a number of coastal areas in the United States, cholera strains carried in the ballast water of some commercial trade ships contaminated numerous oyster and fin-fish populations, making them unsafe for consumption. Without the disease and predators that they contend with in their native lands, the spread of these species can be epic in proportion and the effort to control them can cost billions of dollars. Exotic species can have many negative impacts on the environment, the economy, and human health. When species are introduced into an area, they may cause increased predation and competition, disease, habitat destruction, genetic stock alterations, and even extinction. Of 26 animal species that have gone extinct since being listed under the Endangered Species Act, at least three were wholly or partly lost because of hybridization with invaders. One was a fish native to Texas, eliminated by hybridization with introduced mosquito fish. Rainbow trout introduced widely in the United States as game fish are hybridizing with five species listed under the Endangered Species Act, such as the Gila trout and Apache trout.
Almost half of the native species in America are endangered because of invasive species. The statistics are startling and more attention must be paid to the problem and devising a solution before the cost is more than we can bear. Compared to other threats to biodiversity, invasive introduced species rank second only to habitat destruction, such as forest clearing. Of all 1,880 imperiled species in the United States, 49% are endangered because of the introduction of exotic species alone or because of their impact combined with other forces. In fact, introduced species are a greater threat to native biodiversity than pollution, harvest, and disease combined. Further, through damage to agriculture, forestry, fisheries, and other human enterprises, introduced species inflict an enormous economic cost, estimated at $137 billion per year to the U.S. economy alone.
No one would suggest, of course, that international trade be abandoned, but any attempt to justify it and its increase that is based merely on nominal commodity prices is a logical absurdity, since all such attempts are based on a single, primary consequence. When the costs of the overlooked secondary, tertiary, and quaternary consequences are added to the nominal prices of imported products, the economic advantages of international trade do not look nearly as beneficial.
Of course, our economists who hew to the so called liberal/neoliberal ideology will never take these additional consequences into account. To do so would complicate their calculations far beyond their meager intellectual capacities and nail shut the coffin of their religiously held ideology. Humanity should be well aware by now of just how difficult it is to get someone to abandon his religion. Moslem hoards once attempted to convert Christians to Islam with the command, convert or die. Perhaps we need to confront our economists with a similar choice, but it would have to be, convert or we all die.
©2008 John Kozy
About the Author
Retired professor of philosophy and logic who blogs on social, political, and economic issues at http://johnkozy.mindsay.com and http://www.jkozy.com/. Tries to avoid mere opinion and propaganda and emphasizes logic, facts, and evidence. All or any part of his articles can be cited or distributed when properly attributed.
