The Cargo Cult Economy

No Shortcuts On the Path to prosperity

by Gregory Cummings

Last week, I heard about a particularly tragic example of the post hoc, ergo propter hoc logical fallacy, which Frederic Bastiat, the great 19th-century economist, called “the greatest and most common fallacy in reasoning.”

After the outbreak of World War II, many isolated islands located in the Pacific Ocean became staging grounds for Japanese and Allied forces. This development unfolded before the primitive indigenous peoples, including those on the island of Tanna, Vanuatu. According to Wikipedia:

The vast amounts of military equipment and supplies that both sides air-dropped (or airlifted to airstrips) to troops on these islands meant drastic changes to the lifestyle of the islanders, many of whom had never seen outsiders before. Manufactured clothing, medicine, canned food, tents, weapons and other goods arrived in vast quantities for the soldiers, who often shared some of it with the islanders who were their guides and hosts.

Sadly, this arrangement came to an abrupt end with the end of the war, when the Allied forces abandoned these temporary airbases. Once again, the islanders no longer had access to the myriad of consumer goods provided by visitors from distant advanced economies.

As a result, on Tanna island and elsewhere, local inhabitants formed so-called “cargo cults” in order to restore their lost prosperity:

In an effort to get cargo to fall by parachute or land in planes or ships again, islanders imitated the same practices they had seen the soldiers, sailors, and airmen use. Cult behaviours usually involved mimicking the day to day activities and dress styles of US soldiers, such as performing parade ground drills with wooden or salvaged rifles. The islanders carved headphones from wood and wore them while sitting in fabricated control towers. They waved the landing signals while standing on the runways. They lit signal fires and torches to light up runways and lighthouses. 

In a form of sympathetic magic, many built life-size replicas of aeroplanes out of straw and cut new military-style landing strips out of the jungle, hoping to attract more aeroplanes.

The indigenous peoples of Tanna island observed that material goods arrived after the presence of landing strips and aeroplanes. This led them to falsely conclude that material goods arrived because of the presence of landing strips and aeroplanes. They failed to consider other causal factors, such as the war, and based their conclusion solely on the order of events. This is the essence of the post hoc ergo propter hoc logical fallacy.

This error in reasoning persists today, particularly in the realm of economics as it relates to the role of government. For example, relative to a hundred years ago, it is obvious that our standard of living has drastically improved. P.J. O’Rourke illustrated this brilliantly by observing, “When you think of the good old days, think one word: dentistry.” Quite simply, we owe this increased prosperity to staggering improvements in marginal productivity and the division of labour brought about by capital accumulation and savings in a society based on voluntary exchange and a price system resulting from the ownership of justly-acquired private property. There is no other path to prosperity.

In spite of this knowledge, there remain numerous court intellectuals and their acolytes who serve as apologists for government, falsely insisting that since we are more prosperous after such and such regulation or such and such measure of taxation (other factors not being equal), we are more prosperous because of such and such regulation or such and such measure of taxation. Therefore, they conclude, more and more economic intervention is needed to cure our accumulating economic woes. And so it is, that the post hoc ergo propter hoc fallacy reasserts itself.

But insofar as our well-being is concerned, government intervention in the economy is no more effective than the straw aeroplanes and wooden headphones of some bewildered “cargo cult.” In truth, it probably does more harm.