Posted on 03/14/2023 12:00:12 PM PDT by SeekAndFind
“Economics,” wrote Henry Hazlitt, “is haunted by more fallacies than any other study known to man.”
True. No epoch is immune to the scourge of economic illiteracy.
Yet, we find ourselves in a moment of especially unprecedented economic ignorance. We’ve come a long way since the days of Hazlitt’s editorializing in the New York Times. In the 1930s, believe it or not, the Times held the line on economic orthodoxy in the face of emergent quackery.
Fast forward and here are but a few favorite examples of economic illiteracy, ripped from the headlines of our most prominent rags:
Corporate greed causes inflation
Price controls are an effective way of “controlling” said inflation
The minimum wage is a free lunch to low-skilled workers
Racial discrimination is costless to the discriminator
China is “beating” us at trade
Profits are a wealth “transfer” from consumers to producers
Prices are arbitrary and “set” by sellers
Rent control expands housing availability for the poorest
Trade or immigrants “steal” domestic jobs
Women earn less than men for performing the same work
Capitalism degrades the environment
Material standards of living are falling in industrialized societies
Monopolists can charge whatever they want
Our economy is positively bristling with said monopolists
Socialism generates higher living standards and more equitable economic outcomes than capitalism
Where to begin? Each of these statements is demonstrably false—economists propounding them are in a small minority—yet each also boasts many fervent exponents, not to mention shrill Twitterati advocates and an apparent majority of the public.
Take the first vapid claim. It possesses all the analytical horsepower of an engineer proclaiming that a plane fell from the sky due to gravity. For those of us taking our cue from Moses or Solzhenitsyn, we believe greed is a constant running through the center of every human heart. And a basic causal principle holds that explaining variation (changing prices) by appealing to a constant (greed) is a scientific non-starter. The economic point of view directs our attention toward the constraints or opportunities which must have changed to allow for rising prices.
My favorite on this list is the claim about rent control—a recently resurgent policy. You’ll search high and low before finding an economist who believes rent control exhibits a tight link between intentions and outcomes. (For evidence of my claim, see this rent control poll of dozens of the world’s top economists).
And for good reason. Rent control generates a shortage—more people want housing units than there are units available. Housing isn’t special in this regard; we’d see the same outcome if oranges were compelled to sell for a penny a piece. This shortage throws open a Pandora’s Box of social pathologies that certainly no price control advocate intends. I’ll mention just two.
On the supply side, landlords seek to exploit the housing queue to their benefit. Like a careful grocery shopper sorting through the orange bin, the shortage enables landlords to become extra choosy. Unlike a careful grocery shopper, the selection criteria may expand to include arbitrary tenant characteristics like race, sex, or religious creed. Rent control doesn’t make anyone a racist (like greed, racism cuts through the human heart). But rent control does lower the costs of the prejudiced expressing their bigotry.
On the demand side, potential renters often devise clever schemes for nabbing an apartment before it’s occupied. Under rent control, apartments go like hot cakes. In New York City, applicants are known to search the obituaries. In post-WWII Paris, young women stalked the oldest, sickest residents they could find on the presumption that when one failed to appear at his favorite café a room had opened courtesy of the Grim Reaper.
In the long run, rent control devastates the housing stock as landlords are taken to the cleaners. Some owners set fire to their own buildings. Better to collect the one-time insurance payout than to be bled dry by the rent control ordinance. Others simply flee. The predictable result is that the low-income housing stock crumbles. Economist Assar Lindbeck speculated that rent control can be as effective a means of razing a city to the ground as is aerial bombing.
Meanwhile, the relative rate of return to investing in luxury apartments or condominiums, both exempt from rent control, begins looking more attractive. Entrepreneurs respond by redirecting their investments. The supply of high-end housing expands; rent control (can) provide a subsidy to billionaire Manhattanites.
I hesitate to mention it because I don’t want to give a politician the wrong idea, but economics does prescribe a straightforward recipe for boosting the housing supply. It’s simple: Place price ceilings on every other good—oranges, TVs, t-shirts, baby formula, doctors’ salaries—anything and everything but housing. Henceforth, entrepreneurs will invest in nothing but housing, dramatically increasing its availability. Of course, another option for policymakers is to slice through the forest of regulations which have shackled America’s housing supply.
With more colorful examples like these, my 2021 book, No Free Lunch: Six Economic Lies You’ve Been Taught and Probably Believe, pushes back against our culture’s increasingly dominant paradigm which sees society as so much Play-Doh for policymakers to mold.
The great economist Armen Alchian once observed, “Fortunately, societies have progressed despite almost universal ignorance of economic principles.” True.
I wonder, however, if ours hasn’t succumbed to a Gladwellian “tipping point.” After all, economic knowledge needn’t be explicitly articulated for the citizenry to possess a tacit, intuitive “horse-sense” about how the world works. To my mind, that’s been lost in recent years.
Alchian also rightly observed that “economic law cannot be suppressed by legislated law.” With the majority of U.S. citizenry evidently believing that economic reality can be repealed with the stroke of a pen, and substituted by legislative fiat, we may be on the brink of putting Alchian’s first claim to the test. Just how much economic ignorance is compatible with human flourishing?
I don’t think it’s economic illiteracy. They know exactly what they are doing - it’s economic sabotage.
Corporate greed causes inflation.....Printing and spending money like it was free causes inflation.
Price controls are an effective way of “controlling” said inflation.......Only if you want those controlled products to disappear.
The minimum wage is a free lunch to low-skilled workers.....Minimum Wage is Zero, no matter what the law says.
Racial discrimination is costless to the discriminator............Until they get caught.
China is “beating” us at trade......They send us crap products. We give them crap dollars.
Profits are a wealth “transfer” from consumers to producers........It’s an even trade.
Prices are arbitrary and “set” by sellers......The market sets the value of a product. People decide if they want to pay it.
Rent control expands housing availability for the poorest........Yes, they will have a variety of slums from which to choose.
Trade or immigrants “steal” domestic jobs......A job disappears when the cost of doing that job is more than it’s value to the producer.
Women earn less than men for performing the same work.....True. A woman will not earn the same salary for a job that a man just retired from after 30 years.
Capitalism degrades the environment.........Communism destroys the environment.
Material standards of living are falling in industrialized societies........That must be true since everybody wants to live in one.
Monopolists can charge whatever they want........True, but that may not be what they actually get.
Our economy is positively bristling with said monopolists...... Monopolies are not illegal. Maintaining one is.
Socialism generates higher living standards and more equitable economic outcomes than capitalism...........It makes everyone equally miserable..............
My dad owned a gas station during the gas crisis brought about by price controls. He was unable to make much because the peices and thus his profit was defined by the government.
I was the lucky kid (I was still in HS) who got to look at people’s gas level meters in their cars to ensure they were below 1/2 and then had the REAL fun of putting the “last car” sign to end sales for the day.
If I did not have a MEAN and LOYAL 90+ lb German Shephard at my side I would have been assaulted for sure. God knows I got a LOT of verbal abuse.
People have incredibly short memories on how bad price controls are.
Our economy is positively bristling with said monopolists...... Monopolies are not illegal. Maintaining one is.
No, we have cartels...especially in big tech/internet.
Each member of those cartels would become a monopoly if they could get away with it!.....................
“Grind the people between the millstones of taxation and inflation.” - attributed to Lenin but seems to be a paraphrase of what he actually did say.
Regardless, the communists behind the curtain (O’Bozo, Rice, ValJar, Holder, etc) are all in charge of Xiden’s economic policy and are implementing Lenin’s comment in real time. I will gladly pay real money to watch them all start their dirt nap on PPV TV.
I agree. Economics is an actual science but it’s so easily politicized it’s hard to see it. I gave up arguing with a leftard online about an obvious point. I stated that no corporation pays taxes. Corporations merely collect it from customers for the government. He could not be induced to see it and thought we could tax corporations as much as we wanted with no impact on prices.
“Fortunately, societies have progressed despite almost universal ignorance of economic principles.” Because God the Father is providing for every thing in the universe, including every human person, 24/7. The Lord is our King and He knows how to decrease debt and increase credit. And the Holy Spirit will assist people to understand the previous two sentences.
Why do we need economic literacy when big brother will take care of us and make sure everything is OK?
Clearly the reason the Silicon Bank went under is because they thought everything was OK if the regulators said it was OK. No need for them to know economics 101.
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