How to not be duped by political blarney
Karl Marx was not a scientist. Nor was Adam Smith before him. They were philosophers. Theorists. Idea men. That’s what all economists in those days were. They had little tested knowledge, and so which economic system was best was all a matter of opinion.
But things are now much different. Nations and local governments tried the various theories. And we’ve seen the results. We now have a whole century of data. Furthermore, economists now are scientists. They use scientific methods and deal with tested knowledge. Sure, there are still controversies, just as there are in any science, but the basic principles of economics today are NOT matters of opinion.
For example, we know what happens when governments impose price controls in all their many varieties—rent caps, minimum wages, laws against price gouging, and medical care cost limits. These last few years we’ve seen a dramatic demonstration of what happens when they meddle with the prices of home loans. We know what happens when they impose tariffs or give subsidies to special groups like farmers or steel producers. We know what happens when they create barriers to people entering a market to compete, like they’ve done with immigrants. We know what taxes do.
The unfortunate thing is that many of these principles seem to be ignored by our politicians. And by those who vote them in. And so we can have a Congress pass massive health care legislation that will cause health care shortages just as similar laws caused shortages in other countries. This is how we have a president who in a recent speech to the U.S. Chamber of Commerce suggested, in good Marxist fashion, that it was business owners who kept the American workers down by hoarding all the profits. Has he not looked at the data which shows that huge profits invite more competition, which tries to get ahead of the leader by cutting prices, which allows the American workers to get more for less, thus raising their standard of living?
In the 1980’s and 1990’s India and China began to make fundamental changes to their economic policies, doing the things that have been proven to work. Suddenly, the economies of those nations started to grow. It’s estimated that 20 million people in India rose out of poverty in a decade. In China, more than a million people rose out of poverty EACH MONTH.
But this seems lost on a number of politicians. Don’t let it be lost on you. We have critical elections coming up. One of the best things we can do is educate ourselves about these basic economic principles so we can cut through all the political blarney. I haven’t found a better, more enjoyable book on the subject than Basic Economic Principles: A Common Sense Guide to the Economy by Thomas Sowell. Sowell is an economist and Senior Fellow on Public Policy at the Hoover Institution at Stanford University. His book is written for the general public and so foregoes dry charts and theoretical ho-hum for lots of real-life examples and straight-forward explanations. There are times when I wish he would have gone into more detail on a few subjects, but what he lacks in depth in a handful of areas, he makes up with breadth. Furthermore, the way he presents the topic was interesting enough to make me stay up late a number of nights well past my bedtime.
Great family entertainment
Do you want some fun family entertainment that includes laughs, wonder, and moments of poignancy? Something you can watch and enjoy with the kids? Then let me recommend the animated TV series Avatar: The Last Airbender. This is NOT the movie Avatar by James Cameron with all the big blue people Nor is it the movie The Last Airbender, based on the TV series, which many fans disliked. This is the original. The one that millions love.
Through the miracle of Netflix, I started watching it with my girls a few months ago. And we’ve all been sucked in. It’s unlike any “cartoon” I’ve seen. In fact, you can’t call it a cartoon just as you can’t call The Incredibles or Lion King cartoons. This is great story telling. Furthermore, instead of it being a bunch of unconnected episodes, this series is telling a long story. It ran for three years on Nickelodeon and includes more than sixty 22-minute episodes.
The series follows the adventures of the main protagonist Aang and his friends, who must save the world by ending the destructive war with the Fire Nation. Aang’s world is divided up into four nations—Air, Earth, Water, and Fire. In each nation are “benders” who can powers with the element of that nation. So Air Benders can fly and create huge winds; Fire Benders can generate and throw fire; Water Benders can create ice and waves.
So it’s fantasy, and all of that is cool, but it’s the characters that we enjoy the most. We quote and laugh at some of their lines. And then there are the episodes with true dramatic moments.
Avatar has been nominated for and won many awards, including the Annual Annie Awards, the Genesis Awards, the primetime Emmy awards and a Peabody Award. It’s excellent entertainment.
First off, Love the work in progress bar you have on your site! Even though it doesn’t really give me any specific details I still feel completely up to date. And its leagues above a Meandering guesstimation date.
Economics and Politics; not the best combination for keeping people listening unless they already agree.
As for Avater: the last airbender I totally agree. It won all of the awards for a reason. To bad for the horrible movie though.
-Rehcra
The aftermath of the subprime lenders debacle or BP’s mismanagement have been felt worldwide. The problem isn’t that these companies are putting profits ahead of everything else, it’s that they’re being dishonest to themselves and in their reporting to shareholders by cutting corners for short term benefit. Ultimately, that works well for the current management who can hope to walk away before the proverbial hits the fan; it works badly for everyone else left to pick up the pieces. Business needs unbiased oversight as much as nuclear weapons – they both stand to ruin lives.
As an American who lives abroad I am often infuriated by the right wing rhetoric back home that obstinately refuses to allow progress. Labelling anyone who disagrees with the status quo as a communist may get one side of politics all fired up, but to the rest of the world we just end up looking churlish. Stepping beyond the propoganda and rhetoric is easy – but it takes stepping outside the US with our eyes open, living in other progressive countries, and seeing for ourselves.
But then, it’s easier to buy the party line and believe the rest of the world has fallen behind us, that change is bad, or that the American way of life is the best in the world. After all, if we didn’t, what would it make us?
Thanks for the recommendations! I always look forward to these posts. What age group is Avatar: The Last Airbender aimed at? My oldest is 5, and he’s easily scared. But I’d love to have a fantasy themed show I can watch with him.
He’ll be fine. It’s not scary. It’s aimed at middle-grade. I have an 8 year old watching it and she loves it.
One of the things I loved about Avatar: The Last Airbender (asides from the characters) is their choreography. The styles of kung fu they chose really fit the elements they represent.
http://en.wikipedia.org/wiki/Avatar:_The_Last_Airbender#Series_overview
How far along are you in the series?
We just started book 3.
If folks are turned off by my thoughts on politics then I suppose they’ll have to be turned off. If they have information to share, I’m happy to hear it.
Not sure how to respond to this or what specific thing your post is taking issue with. I lived in a progressive European country for a few years. Does that mean my views suddenly have clout? The review of the book highlights that economics is not about philosophy anymore. If you have economic studies to share that shed light on something in the post you take issue with, then please share them. If your issue is that I said the President made a statement in good Marxist fashion, please show me how he’s not suggesting that the government allocate goods and services instead of letting prices take care of that coordinating.
I don’t think any of your remarks are inappropriate, John. But they will offend plenty of people. Plan on it. Any time you venture a personal opinion, there is bound to be somebody who gets annoyed. At this point, the kind of people who get offended at the idea of fiscal responsibility deserve to be offended.
Firstly John, I’d like to say I’m a fan. Servant of a Dark God is on the same shelf as my books by Brandon Sanderson, Kate Forsyth and Raymond E. Feist.
Secondly, I’d like to apologise for the length of this post. This is the shortened version, honest.
My science major taught me that even in empirical studies, interpretation plays a major role.
At a recent lecture I heard ~2% of climate scientists say the jury is out on climate change (although if you think about it, if 2% or even 4% of a jury said ‘not guilty’, that jury would be telling the judge ‘throw the book at him/her/them’).
Unless these scientists are researching on different planets, the difference must be how they interpret their data, and which data they choose to analyse. [Yes, analyse with an ‘s’. I’m Australian. No promises about the rest of my spelling 😉 ]
Let me put it this way. I think of economics as applied sociology: http://xkcd.com/435/
Before anyone points out the obvious, I am of course at least as guilty as anyone else.
I have not read Thomas Sowell’s book, only drawn on some undergraduate classes and some quick research. I note Sowell considers welfare as promoting poverty. For an example of alternate economic views, Wikipedia links to academic studies which contradict this position (for example http://www.u.arizona.edu/~lkenwor/sf1999%28poverty%29.pdf). But as you did not make note of this in your summary, it may not be relevant.
As for whether it is good economics to let money pool in the hands of the rich, we must consider marginal propensity to consume (MPC) (1). MPC is the portion of new income that an individual will spend when their disposable income increases. People with low income tend to have a higher MPC than those with a high income (2). If you have lots of money, you are less inclined to spend any extra you receive. So if you want lots of cashflow in your economy, you want to give it to those with little money.
Therefore, in an economic sense, President Obama would be correct in stating that allowing the rich to hoard profits is harmful.
This isn’t about government allocation of goods, this is about the government regulating anti-competitive practices and helping people lead happy lives.
I agreed wholeheartedly with your summary when you pointed out that governments seem not to do their research when trying to make their policies a reality. I wonder if my government, also struggling with the health care system, is working to emulate France (3), or whoever has the best system now…
What is all this telling us? Well, I am with your recommendation 100%. We need to educate ourselves and use the limited information we possess to make the best decisions we can.
As for economics having no room for philosophy, whatever happened to ethics?
Thank you for providing a forum to express this. I hope I have not bruised anyone’s psyche too deeply. I also hope no one is planning to bruise (or puncture, maim, poison, etc.) me too deeply. An opinion was invited and mine was given,
Like you stated earlier, if someone can’t sit with my political views, they are free to stand up and find a chair they like better. Unfortunately, I doubt I have time to discuss this further myself. I guess it’s a good thing I’m posting where I am. This discussion can continue without any contribution from or to me. The same cannot be said for my next essay.
Respectful Regards
(1) Bernanke, Olekalns and Frank, Principles of Economics (2006) [textbook]
(2) Cervantes-Godoy, D. and J. Dewbre (2010), “Economic
Importance of Agriculture for Poverty Reduction” in OECD
Food, Agriculture and Fisheries Working Papers no. 23 [journal]
(3) http://www.who.int/whr/2000/media_centre/press_release/en/
Heath,
These are precisely the kinds of comments I love. Thanks for taking the time to post.
I think your comments on MPC makes a lot of sense. However, forcing those that make profits to share all those profits with others eliminates the incentive to make the profit in the first place. Which then removes some or all of those profits. Which then dries up the cash stream or keeps it artificially low. People want that service, which is why they were willing to pay the prices stated to begin with. But now they can’t get it because it’s not worth the time of producers to provide it. Furthermore, because the opportunity attracts fewer entitites, prices stay higher.
If instead, you let the companies keep the cash they’ve earned, what happens? If they get to keep the cash, then they usually do not distribute it all to their owners. Most of it is kept in the company. Because there’s even more profit to be made they will try to increase production which requires them to purchase more equipment and/or increase labor. It also attracts other companies to move or expand operations to get some of the profits. Jobs are preserved and created. So the cash still flows through the system, but in this case it creates jobs. Futhermore, it creates incentives to continue generating the profit. As more companies compete, prices usually drop. This makes the product or service cheaper for the consumer. Finally, it gives incentives to allocate resources to delivering this product or service that people want.
The intent of helping those poorer than ourselves I think is a good one. But using a method that removes the incentives of production seem to actually work against that. I think it’s stunning how many people rose out of poverty when India and China made the reforms they did.
I think a better approach in many cases is for the individual to seek out ways to help and places to send money and time. And the help will be sent to the causes people place the most value on because each individual will be prioritizing their causes.
This is not to say that I think that a government can never do a better job, given all the pros and cons. For example, I think it’s probably best for the government to maintain a military and fire department etc.
But the thread of Obama’s comments on this matter from his campaign until now haven’t been about weighing each case. He talks about forcing an allocation of wealth from those who have more to those who has less as a general principle. And it is this general principle that has been shown in the last century to not allocate resources as effectively and raise the standards of living of a nation as an economy that uses prices and individual choice to allocate the resources.
Also, I know some people think the rich just sit on piles of money. But actually they put that money into investments. Some of those savings or investments are in the banking system, which lends money to small and large businesses and individuals wanting homes etc. Some of those investments are in companies. Some in bonds (so the US government, companies, and local municipalities can get the cash they need to do things for the public good). The cash doesn’t sit in a pile somewhere. And even if it is in a bank account, it’s being lent out.
So the cash flows through the system either way. It flows through when government does the spending. But when individuals and individual companies are allowed to make the decisions on where it goes, and let prices self-regulate so they can provide accurate information to consumers and producers, the funds are allocated more efficiently, although not perfectly, to the products and services valued most. The incentives to produce remain, increasing the overall cash flow and getting the resources to where they’re wanted.
Dannyboy, true. Civil disagreement is always welcome on my site. I don’t expect everyone to agree with me. Therefore I see no reason not to post something just because someone may disagree. If someone gets torqued about something, then they can be torqued as well on my site. Just as long as they keep it within bounds. 🙂