At a lunchtime meeting of the Grassroots Institute in Honolulu at the Pacific Club, the President of Mises Institute, Jeff Deist, delivered a talk as part of the Mises Institute Private Seminar series for lay audiences.
Mr. Deist talked about why Economics matters; any Economics. He pointed out that while economics schools of thought should not be rigid, or dogmatic or even narrowly defined, classifying economist and theories in groups help us make sense of economics.
He further points out that “any” economics matter because the subject is not a popular topic amount the general population and seems to be lost on the average American. When discussed, if discussed, it is in the context of politics which ignores the reality and importance of economics. They prefer to talk about other subjects. After all, who is inspired by flat tax proposals, or by the Laffer curve, if I may add?
But economics matters, and matters a lot because it affects us all. Economic 101 teaches us that when the price of something rises, demand drops, and you have more unemployed people. A likely scenario as result of increased of minimum wage according to Mr. Deist. This brings us back to the Laffer curve that illustrates the tradeoff between tax rates and total tax revenues actually collected by the government. If price of the output increases, whether by increase in minimum wage or by increases in taxes, demand drops which in turn creates unemployment, the government revenues decreases and with it, government programs are cut which creates further unemployment.
Mr. Deist goes further to say that ignorance of economic allows falsehoods be accepted as fact by many, which allows politicians to blame free markets for the very economic problems caused by the state and its central bank, in the first place. Do we need to remind anyone about the “house bubble” and the role played by Fannie Mae and Freddie Mac?
For Mr. Deist, the ignorance of economics creates its own de facto school of thought: the Economics of the Moment. It is not discussed in textbooks, has no theories and no principles beyond political expediency of the moment. Buy now, pay later and deal with the problem when the offending politicians or central bankers have retired. Enjoy today and pass the buck.
Unfortunately as Mr. Deist rightly points out, the economics of the moment makes current crises worse and sets the state contractions down the road. We all know what that means: negative growth. The economy as a whole is in decline and people start losing their jobs.
Politicians enjoy from the theory of enjoy today and pass the buck as their popularity increases proportionally to the dollar spent. They love their earmarks. Remember the 223 million earmark to fund the construction of a bridge from Ketchikan, Alaska, to the tiny island of Gravina? The bridge to nowhere.
Do we continue to be willfully ignorant of economics to “blank out” as Ayn Rand put it or do we do something about it? Mr. Deist answer is to convince young people that economics matters and make it less dismal and more relevant. I agree, and also agree with his notation that academia has a vested interested in making economics seem more complicated than it is.
After all, what is so difficult to understand that if it costs more, you buy less, if you buy less, more businesses close, if more businesses close, there are more people unemployed? If we are unemployed the need for food, water and shelter becomes the worry of our lives.
It is so difficult to understand why countries governed or ruled by a dictatorship where free market is not allowed to thrive, individuals can only work for government controlled agencies, salaries and prices are set at will and not by supply and demand, that democracy takes second role to the “resolve” of every day needs? Liberty, democracy, intellectual stimulation, efforts for a better future, is less immediate and lower in Maslow’s hierarchic of needs.
For Mr. Deist, the Austrian school of economics provides the best framework for addressing the problem. But it may be fair to question whether Mr. Deist is falling into the same trap by using the academia, rather than the School of Common Sense, to explain why economics matter.
A system of laissez-faire capitalism: a social system in which the government is exclusively devoted to the protection of individual rights, including property rights, and therefore in which there exists absolutely no government intervention, best explains to the average citizen, American or not, why economics really matters.
As a bonus, we may learn to defend better our democratic beliefs from demagogues who offer free social reforms, expropriation of farm lands; estate centralized economic resources with no incentive to the employee. Demogogues that vow to limit profiteering, restrict retail profits, fix prices and control imports.
When the majority understands why economy really matters, then we’ll also understand why we shall never allow governments be masters of our economy and become masters of our destiny.
To read Why (any) Economy Matters by Jeff Deist go to: mises.org/library/why-any-economics-matters
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