Why Economics Matters
This article is a selection from a June 19 presentation
at a lunchtime meeting of the Grassroot Institute in Honolulu at the
Pacific Club. The talk was part of the Mises Institute’s Private Seminar
series for lay audiences. To schedule your own Private Seminar with
a Mises Institute speaker, please contact Kristy Holmes at the Mises Institute.
First
let me say that what we today call “Austrian economics” flows from the
great legacy of classical economics, with the very important
modification economists now call the “marginal revolution.” Austrian
economics is also a term that describes a healthy and vibrant (though
often oppositional) modern school of economic thought. It originated
with intellectual giants like Carl Menger and Ludwig von Mises, names
I’m sure many of you are familiar with. These economists were from
Austria, hence the term.
There
was a landmark conference at South Royalton, Vermont in 1974, attended
by the likes of Murray Rothbard and Milton Friedman, that revitalized
the Austrian movement and helped it regain prominence in the latter part
of the twentieth century. Milton Friedman was in attendance, and that’s
when he famously remarked that “There is only good economics and bad
economics.”
And of course
that’s true. Schools of thought should not be rigid, or dogmatic, or
too narrowly defined. But classifying various economists and theories
into groups or family trees does indeed help us make sense of economics.
It helps us understand how we arrived at a time and place where Ben
Bernanke, Paul Krugman, Thomas Piketty, and Christine Lagarde are viewed
as modern mainstream thinkers rather than the radicals they are when
compared to the whole history of the field.
Image courtesy of Peter Cresswell.
We
supplied some photocopies that roughly trace the history of economic
thought. Notice the split in the 1930s, not coincidentally during the
Great Depression, between Mises and John Maynard Keynes. Up until then,
from about 1850 forward, Austrian economics was mainstream
economics. But as you can see, most of today’s mainstream economists
fall somewhere under the umbrella of Keynes, and they tend to focus on
variants of Keynes’s ideas about aggregate demand.
But at least they focus on something!
Ignorance of Economics Is not Bliss
Which leads me to my topic today: “Why Any Economics
Matters.” I say “any” because at this point the entire subject appears
to be lost on the average American. Economics is not a popular topic
among the general population, it would seem. When economics is discussed
at all, it’s in the context of politics — and politics gives us only
the blandest, safest, most meaningless platitudes about economic
affairs.
Bernie Sanders
or Hillary Clinton simply are not going to talk much in economic terms
or present detailed economic “plans.” On the contrary, they — will
assume rightly — that most Americans just don’t have any interest beyond
sloganeering like “1%,” “social justice,” “greed,” “paying their fair
share,” and the like.
Candidates
on the Right won’t be much better. They’d prefer to talk about other
subjects, but when they do broach economics they’re either outwardly
protectionist like Donald Trump or deadly dull. Who is inspired by flat
tax proposals?
Americans
simply aren’t much interested in the details, or even the accuracy, of
the economic pronouncements of the political class. We want bread and
circuses.
Consider what
people talk about on Facebook: lots of posts about family. Lots of posts
about celebrities, and sports. Lots of posts about food, health, and
exercise. Some posts about politics, culture, race, and sex, but usually
only to support one side or bash the other.
Not
much, ladies and gentlemen, in the way of economics. And I submit that
might be a very healthy thing. After all — we’re rich! Only a wealthy
society does not have to focus on the subsistence-level concerns of
adequate food and shelter, hot running water, clothing, electricity, and
the like.
So let’s not
be too hard on people for not spending their free time reading
economics. Leisure itself is a very important activity, and represents a
form of economic trade-off.
But
economics matters very much, and we ignore it at our own peril.
Economics is like gravity, or math, or politics — we may not understand
it, or even think about it much, but it profoundly affects us whether we
like it or not.
Economics
as a subject has been captured by academia, and academics
like Krugman are not so subtle when they imply that lay persons should
leave things to the experts. It’s like team sports — we may be
introduced to it when we’re young, but only the professionals do it for a
living as adults.
Yet once we understand that all human
action is economic action, we understand that we can’t escape or evade
our responsibility to understand at least basic economics. To think
otherwise is to avoid responsibility for our own lives.
While
we shake our heads when twenty year olds can’t read at the college
level or do simple algebra, we don’t worry much whether they never take
economics. We would be alarmed if our children couldn’t perform basic
math to know how much change they should get at a cash register, but we
send them out into the world far more susceptible to being cheated by
politicians. Why do we want our kids to learn at least basic geography,
chemistry, and physics? And grammar, spelling, literature, history, and
civics? We want them to know these things so they can navigate their
lives properly as adults
But
somehow we’ve come to believe economics should be left to academics and
policy wonks. And worse yet, we don’t protest when kids grow up to
become adults with little or no knowledge of economics, yet still have
strong opinions about economic issues.
Ignorance
of basic economics is so widespread that we ought to have a specific
word for it, like we have for illiteracy or innumeracy.
The aforementioned Murray Rothbard had this to say:
It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.
I’m sure we’re all familiar with this phenomenon on social media, which seems perfectly suited to vociferous unfounded opinions.
Let’s consider the minimum wage issue, as one example that’s been in the news lately:
Wages
are nothing more than prices for labor services. When the price for
something rises, demand drops — and you have more unemployed people than
you otherwise would. Pure and simple Econ 101.
Yet what percentage of Americans today have even seen a downward sloping demand chart in a high school or college class?
It
is this great and widespread ignorance of economics that plagues our
ludicrous political landscape. It allows politicians to attack
capitalism, and make demagogues out of entrepreneurs. It allows
politicians to blame free markets for the very economic problems caused
by the state and its central bank in the first place — like the dot
com implosion, like the housing bubble, like the Crash of 2008,
like the unsustainable equity prices commanded by US stock markets
today.
In short,
ignorance of economics allows some very big falsehoods to be accepted as
fact by large numbers of people. And it’s only going to get worse as
the presidential election of 2016 unfolds.
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